RESTAURANTS – WESTERN U.S. DEMAND HEADWINDS

On EAT’s 1Q conference call, management just stated that California continues to be weak.

Last week, CKR and CPKI reported worse than expected sales results, which suggested that sales trends in California are not getting any better.  The divergence in gas prices between the west coast and the national average, which is illustrated in the first two charts below, might help to explain the regional weakness.  Although there is a normal seasonal divergence in the price of gasoline geographically within the U.S., the current divergence is the most pronounced in more than 15 years. 

CKR’s CEO Andrew Puzder continues to attribute weakness in sales trends to the current unemployment rates in California and stated just last week that “In particular, record levels of California’s unemployment exceeding 12%, and 18% for the broader unofficial statistic, have negatively influenced consumers’ buying habits.”  Higher unemployment rates combined with this growing spread between regional gas prices, which has been accelerating since mid May, does not bode well for California-centric concepts, such as CPKI, CAKE, RRGB, MSSR, PFCB, JACK and CKR.  On a more favorable note, the third chart also highlights the regions of the country, which benefit from relatively lower gas prices, most notably Texas. 

Overall, gas prices have been extremely favorable on a YOY basis for restaurant companies this year.  During the first half of the year, national average gas prices were down 38% on average.  This YOY favorability continued into 3Q with gas prices down 33% on average.  Looking at the final chart below, this YOY cost benefit has already started to moderate and based on current prices should reverse come the end of October. 

RESTAURANTS – WESTERN U.S. DEMAND HEADWINDS - Gas price.west cost recent

 

RESTAURANTS – WESTERN U.S. DEMAND HEADWINDS - Gas price.west cost historical

 

RESTAURANTS – WESTERN U.S. DEMAND HEADWINDS - gas prices regional difference

 

RESTAURANTS – WESTERN U.S. DEMAND HEADWINDS - Gas Prices