RESTAURANT INDUSTRY – THOUGHTS ON NEXT WEEKS PRESENTATIONS- “CHALLENGING VOLATILITY”

If last year is a good indication of what to expect, I am assuming that most of the news flow out of the two conferences will be more qualitative than quantitative. 

 

Next week will be a busy week for restaurants.  Between the Cowen and Company Consumer Conference earlier in the week and the ICR XChange Conference starting mid-week, we will hear from the management teams of about 25 public restaurant companies and a handful of private restaurant companies as well.  Domino’s is also hosting an investor day on Wednesday.

 

Last year, BJRI, TAST and CPKI preannounced 4Q numbers in conjunction with these conferences (KONA preannounced 2 years ago).  We already got BJRI yesterday after the close.  For the most part, the balance of the companies presenting did not put out any press release on the days leading up to the conference last year, except to give the time and date of their presentations.

 

If last year is a good indication of what to expect, I am assuming that most of the news flow out the two conferences will be more qualitative than quantitative.  I wish I had counted the number of times management used the word challenging last year so that I could compare it to this year and use it to gauge the current demand environment versus last year.   I am only half serious, but I do think the general tone of next week’s presentations will be more telling than anything else.

We heard from SONC, CKR and RT already this week so I am not expecting anything incremental out of any of these companies’ presentations. 

 

Instead, I think the trends discussed by all of these companies this week will help to dictate the line of investor questioning next week.  Specifically, I think investors will be interested in hearing about the current environment as it relates to the level of industry discounting, average check declines, regional performance (particularly in Texas), QSR’s slowing trends, the impact of weather on trends in December, whether the improvement in November casual dining trends has held up and whether we are yet getting closer to demand recovery.

 

Last year, PFCB’s Co-CEO Bert Vivian gave one of the more memorable presentations as he provided what I viewed as a rather dire outlook for the casual dining industry.  PFCB will be presenting again next week and although the company’s press release does not specify which executive(s) will be at the conference (I am hoping for Mr. Vivian), I will be listening to see if there is any change in the company’s tone.  Below I included some of Mr. Vivian’s comments from last year.

 

I am not expecting any one company to make as many colorful and telling comments as Mr. Vivian did last year, but I think all of the presentations together should provide us with a better idea of how the industry is faring.  I am looking forward to learning this year’s new favorite word among restaurant management teams…my guess is volatile.

 

From 1/13/09:

 

PFCB – NEW CO-CEO PROVIDES A DIRE OUTLOOK FOR CASUAL DINING

 

Bert Vivian, PFCB’s new co-CEO as of earlier this month, presented at an investor conference this morning and spoke rather generally about current trends in casual dining.  While his commentary is entertaining, he did not paint a very optimistic picture.

 

Below are some of his comments (I am paraphrasing):

 

Casual dining has been ugly and it is going to continue to get uglier.

The lights went out on December retail same-store sales…This is not just a retail problem.

Yesterday, RUTH reported that comparable sales declined over 18% for the fourth quarter. Don’t be surprised by these types of numbers. Whatever numbers you are expecting for the industry should most likely be ratcheted down.

During the fourth quarter, particularly in December, people had a reason to go out shopping. When people are out, they occasionally also go out to eat. We see no reason for people to go out in 1Q. It is going to be a cold 1Q in retail and restaurants. There is nothing to change people’s behaviors in the next few months.

This is a tough sales environment. 2009 for our group is going to be a throw away.

There is no need to be in a hurry with this group. There is nothing we see that makes us think business is going to take off any time soon.

The casual dining group’s decline in development in 2009 is likely going to stretch out into 2010 because once the hammers stop, it is tough to get them going again. (This might have been the most positive thing Bert said as it relates to really fixing one of the biggest fundamental problems facing the group as a whole).

Below are some of Bert’s more positive comments:

In the past, PFCB has used its free cash flow to build new restaurants. With the slowdown in development, this is not going to be true for this year and most likely for the next few years. What do we do with our free cash flow? (Bert answered his own question, saying that PFCB will most like use its cash to pay down debt and buy back shares.)

The sun will shine again on this group…We just don’t know when.

The current market cap of all of the higher-end steak players combined suggests that people are not going to eat steak anymore…I am going to continue to eat steak.

People are going to continue to eat out. The casual dining business is not going away. There are going to be casualties, but there are also going to be survivors. 2009 is going to be a tough year, but PFCB will be one of the survivors and should come out a stronger company.


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