×
LIVE NOW
The Call @ Hedgeye | March 28, 2024

With the pending release of Malcolm Knapp’s May same-store sales and traffic trends, the rumor mill is circulating a -1% same-store sales number.  We obviously have no way to confirm the validity of this -1% number prior to Malcolm’s official release, but we thought it was worth commenting on regardless. 

A -1% same-store sales result would imply flat 2-year average trends on a sequential basis from April.  For reference, same-store sales trends in April decelerated 80 bps on a 2-year average basis from March.  In light of the sequential slowdown in May 2-year average trends reported by a few QSR companies (please refer to yesterday’s post titled “QSR – A LOOK AT CURRENT TRENDS” for more details), I was expecting a further slowdown in May for the casual dining operators so a -1% would be positive relative to my expectations.  It is worth noting, however, that this upside to my estimate would still imply a 50 bp deceleration in 2Q10 quarter-to-date trends from the first quarter on a 2-year average basis.  So, as I have said before, top-line trends will be coming under increased pressure as the industry, on average, begins to lap increasingly more difficult YOY EBIT margin comparisons in 2Q10 and for the balance of the year.

In May, we are lapping the first month in 2009 when reported comparable traffic growth was better than reported same-store sales growth.  This trend, which Malcolm dubbed “a most unusual event”, continued through November 2009 as a result of the significant industry discounting.  As we begin to lap these bigger YOY average check declines, we should begin to see checks stabilize YOY, offset by traffic.  Although significant discounting is not good for average check growth or margins, continued improvements in traffic trends will be the most important indicator of a recovery.  In April, traffic trends on a 2-year average basis slowed 140 bps sequentially from March and 100 bps from the average in 1Q10.

CASUAL DINING – KNAPP RUMOR MILL - Knapp May 2010 estimate

Recent casual dining management comments:

PFCB June 9 presentation:  The company implemented a 1% to 2% price increase at the Bistro in May in an attempt to support average check, which has been a drag on comp growth as traffic has improved.  And, Mr. Vivian stated that comp growth is “getting dangerously close to getting positive.”  Weekday sales growth is improving ahead of weekend growth, which he attributes to stronger business travel spending (accounts for about 30% of Bistro’s tickets).  He also commented that sales and traffic trends at Pei Wei continue to improve in 2Q10. 

Specifically, he said that management continues to believe that the second half of the year will be better than 1H10, and in line with management expectations, they are continuing to see a gradual improvement in trends across the country.  They are seeing signs of life in Arizona and California and although retail activity slowed in May in California, the Bistro continued to show steady progress. 

EAT June 8 presentation:  Relative to average check trends, the company stated, “We’re hopeful that some of the more aggressive discounting that’s been occurring in this space is starting to abate, and you’re starting to see people promoting lower- priced items on their menu than necessarily discounting items, which we hope is a good sign.”

CAKE  June 8 presentation: “Without specifically commenting on any results that we’ve seen since we made our – gave our guidance in April, I think that the consumer is impacted obviously by a lot of things and the stock market going up and down, the things that are going on overseas.  Things that don’t make you feel better about your wealth don’t help you consume more. So those are things that are potentially worrisome for all consumer product companies. And I would just say that what we’re focused on is controlling the things that we can control.

We can control, when you come into our restaurant, whether we give you a better experience than we gave you the last time we came in, that the food was hot, that it was cooked perfectly and that your wait time was reduced, or at least your quote time was accurate. There is many things that we can control. So we’re working on those types of things, but I think the consumer is resilient. They showed that they returned to the brands that they liked the best first, when they came back. And dining out is one of those things that I think consumers are – they like to take away last and they like to put back first when they feel like they can, from a economic standpoint.

We have – incident rates on desserts are up for us, which is kind of incredible in this environment.  They’re up and consumers are ordering more desserts, less alcoholic beverages, so we’re not driving them to drink, I guess yet. But our incident rates on most of our items are up, other than beverages.”


RUTH June 8 presentation:  They have three buckets of consumers (special occasion, business and affluent, core consumers).  Each bucket makes up about 1/3 of tickets.  Regulars are coming back and they are seeing better special occasion trends.  Weekend business is getting stronger and total revenue is up on certain nights.  They are seeing more energy around the restaurants and bars.

Howard Penney

Managing Director