Please disregard prior version.
Besides management commentary and top-line trends, stock price movements and volume are also confirming the divergence between Casual Dining and Quick Service Restaurants.
QSR trends have been soft, with negative same-store sales trends and an “extremely competitive landscape” being compounded by the adverse weather in December. Information coming from management has been insightful:
- SONC cited the economic climate, competitive pricing, and the unpredictable weather as factors in the continued freefall in its top-line trends
- CKR also attributed their sales results for the period ending December 28th to “poor weather conditions” and “ongoing weakness in the overall economy”
- MCD reported that domestic comparable sales in November declined 0.6%. This was below expectations and was the second month of reported declines. I am expecting trends to remain negative in December (MCD is reporting December and 4Q09 results tomorrow before the market opens).
- YUM guided to US same-store-sales growth of -8% in 4Q09, which implies about -4% for the full year. Management guided to 2% same-store sales growth in 2010, which would imply another year of declining 2-year average trends. Two-year trends have been declining despite lapping easy comparisons (something management has been willfully blind to)
All restaurant chains are impacted by the economy but we believe that the effect is amplified for QSR chains. QSR chains are heavily dependent on the 16-19 year old demographic, something highlighted by JACK management on their most recent earnings call and our 01/08/10 post, “QSR – ILL TAKE ONE JOB, HOLD THE BURGER”.
FSR is facing easier comparisons but trends appear to be improving, on the margin, while QSR trends continue to worsen. There has been some interesting detail provided by FSR companies regarding their marginal improvement of late.
- CAKE’S 4Q09 same-store-sales exceeded expectations, coming in at -0.9%. This represented a sequential 20 bps deceleration on a two-year basis but still beat management’s guidance of -2% to -3%. Management also stated that the sequential improvement in same-store-sales growth was “driven almost entirely by guest traffic”
- CPKI’s management struck a positive tone in their preannouncement of fourth quarter results. While high unemployment states continued to dampen sales growth, “comparable sales improvements in dine-in, take-out, and delivery channels were encouraging”. Overall, comparable sales growth in the fourth quarter improved sequentially. Nevertheless, two year trends continue to deteriorate on a sequential basis
- BJRI’s preannouncement of comparable restaurant sales of -0.2% in the fourth quarter translated into a significant improvement in two year trends on a sequential basis. Furthermore the company targets 13% growth in restaurant operating weeks in 2010
- EAT’s blended same-store-sales growth of -3.1% beat the street’s expectations of -4.3%. Two year trends for EAT’s blended same-store-sales improved about 70 bps on a sequential basis.
- At the Cowen & Company Conference recently, PFCB co-CEO Bert Vivian was far more optimistic than last year during his presentation. While he refrained from divulging any specifics, Mr. Vivian made it clear that while the social side of PCFB’s business is still soft, he expects business customers to continue to improve. He anticipates modestly negative comps at the Bistro and positive comps at Pei Wei
The tone is by no means positive in either segment but the divergence between QSR and FSR is becoming more and more apparent. This view is certainly not consensus; for some time the dominant view has been that QSR will outperform FSR as diners remained focused on value and promotions. A WSJ article published yesterday outlined the National Restaurant Association’s prediction for QSR chains to post a 3% rise in same-store-sales while FSR are expected to see a 1.2% rise in same-store-sales. The prevalence of this thesis only makes our view, that FSR is outperforming QSR, all the more noteworthy. To reiterate, unemployment seems to be impacting QSR, through its important demographic groups, more meaningfully than FSR chains and we expect QSR top-line trends to continue to lag behind until that situation improves.
Below is a table showing the divergence between the two segments with prices from 1/20/10 and weekly, 30 day, and 60 day price changes as well as volume and latest short interest: