“The slow but steady improvement for restaurants continued during the week ending May 10. Comp sales were -40% YOY for the week. This represented a 5% increase from last week’s YOY performance and almost 20% better than mid-April.”
HEDGEYE - With SSS -40% the restaurant industry is still a depression.
“Limited-service brands continue performing better than full-service, with comp sales of -6.5% for the week. Within these companies, many of those classified under quick service are starting to see significant positive growth in their sales YOY. Quick service has posted two consecutive weeks of positive comp sales.”
HEDGEYE – This puts into perspective how devastating the pandemic is to SBUX. With 40% of the SBUX system having drive-thru, it still sees sales down in-line with the industry. From Christian Drake on the Hedgeye Macro team – “More than 40 million Americans have lost their job in the last 60 days. That is a catastrophic sum, and a level of concentration labor market devastation that is nearly impossible to overstate and which written and verbal articulation remains a deficient vehicle for sufficiently conveying.”
“With a lot of dining rooms still closed and many others open at a limited capacity, full-service concepts keep experiencing much more significant drops in sales YOY, despite the improvements in recent weeks. Comp sales for full-service restaurants were –55% during the week ending May 10.”
“At the national level, dine-in comp sales were -95% for the week ending May 10. Quick service at -88% and casual dining at -91% are the segments leading in comp sales for dine-in. Casual dining dine-in comp sales were -97% last week, highlighting how the reopening of restaurants has benefited this segment in particular.”
“Even if there has been some improvement in dine-in sales, at the national level, off-premise sales continue to accelerate rapidly at a pace comparable to recent weeks. Comp sales for off-premise (delivery, drive-thru, to-go) grew by 202% YOY during the week for full-service restaurants; for limited-service brands, growth in off-premise was 31%.”
HEDGEYE – On balance, every management team has expressed confidence that they will be able to maintain most of the incremental gains in off-premise sales. We don’t believe this to be true.
“Looking at casual dining, the top 8 performing states during the week based on comp sales reflect the improvement in states that had dining rooms open during the week. The best performing states (Montana, North Dakota, Utah, Oklahoma, Tennessee, Georgia, Texas and Florida) had a casual dining comp sales average of -34%. The average for the rest of the country was -52%.”
“Using the largest of these states as a sample for analysis (Tennessee, Georgia, Texas and Florida) dine-in comp sales averaged -68% for casual dining in these 4 states (23 percentage points better than the national benchmark).”
“As dine-in sales are picking up, to-go sales are beginning to slow down in those states that are reopening. Average to-go comp sales for these states was 192% for the week ending May 10. The average for these states over the last two weeks was 226%.”
“The reopening of dining rooms is having a significant impact on guest checks by improving beverage sales mix in those states. Beverage comp sales for those four states averaged -67% during the week, compared with -95% at the national level.”
HEDGEYE – Even with dining rooms open and SSS -34%, the restaurant industry is operating in a depression. As RUTH said today, “If the company were to disregard recent restaurant re-openings and assume it is only able to offer takeout and delivery operations in a manner consistent with April operations, with no restaurants open for dine-in operations for the rest of 2020, and assuming it receives $48M in net proceeds from this offering, with $9M used to repay debt, and taking into account $59M of cash on the company's balance sheet as of 18-May-20, it would not have sufficient liquidity to meet the Minimum Scheduled Cash requirement in December 2020. Therefore, under these assumptions, the company would be in breach of the monthly liquidity covenant as of that month.” RUTH is not alone!
