Highlights
BLACK BOX - FOR THE WEEK 12/17
Comp sales for the last three weeks have been the worst for the industry since early August. Year–over–year restaurant comp sales growth improved during the most recent week; this is most likely attributed to Thanksgiving negatively impacting sales last week. Restaurant comp sales were worse than what was reported two weeks ago, evidence that comp sales are trending in the wrong direction. Restaurant comp traffic followed the same trend, but traffic fell faster than sales over the last two weeks. The drop in comp sales was more considerable for full-service restaurants than it was for limited-service. Despite the decline in sales during the week, comp sales for limited-service restaurants remained positive year over year.
As COVID case numbers continue to rise and colder weather halts outdoor dining in many regions of the country, off-premise sales in full-service restaurants pick up again. Off-premise sales growth year over year during the week was as high as it has been in the last nine weeks. Off-premise sales in limited-service restaurants remain elevated, and their growth rate trend remains relatively flat in recent months.
All states experienced negative comp sales during the week, but 16 improved their comp sales results over the last two weeks. The states which made the most significant gains during the period were New Mexico, North Dakota, Wisconsin, Hawaii, Utah, Maryland, South Dakota, Idaho, and Montana. The District of Columbia’s improvement would also place them among those with the most significant comp sales gains. The states that saw the biggest drops in comp sales over the last two weeks were Alaska, Minnesota, Kentucky, Colorado, Nevada, Michigan, Washington, California, Nebraska, and Alabama.
Adding DASh to the short bias list
The perfect setup of a connection between multiple trends has led to a potentially exciting short selling opportunity in the delivery space. With the rise of e-commerce and the convenience of shopping from home in a COVID-19 world, consumers welcome the opportunity to make life a little simpler. The idea of eating a frictionless meal delivered to your door has grown significantly over the past five years, now creating one company with a market value of $60 billion. That valuation is 4.5x greater than its largest competitor and nearly 8x greater than what Just Eat Takeaway is paying for GRUB. GRUB/TKWY will have some serious work to do to stem GRUB’s market share decline, but we believe there is a good chance that GRUB's assets in some key cities can compete more effectively under new management.
The DASH S-1 was filled with talk about how the company has taken on mission-critical challenges, making it harder for merchants not to use the service as more customers eat at home. They seem to have solved other services, including customer acquisition, insight, analytics, payment processing, debit card for dashers, and mediocre customer support. This has led DASH to capture a 50% market share at the expense of Uber Eats (UBER) and Grubhub (GRUB). All of this has been accomplished behind closed doors and away from the scrutiny of the public markets. That ended with the IPO.
The challenge will be lapping the pull-forward of demand during the pandemic. Their number of orders hit a record 103 million in 1Q20 (up 26% sequentially), accelerated to 204 million in 2Q20 (up 98% sequentially), and maintained growth to 236 million in 3Q20 (up 16% sequentially.) The first real test for the company and the stock is managing expectations for 4Q20 order volume and profitability. We have order volume slowing 4% sequentially in 4Q20 to 246 million orders. This represents YoY order volume growth of 200% in 4Q20 versus 237% in 3Q20. We are modeling the take rate at 12.1% in 4Q20. Assuming COGS of 43% and some leverage in S&M and R&D, we see an (A)EBITDA margin of 13%. The real question is how do these numbers compare to what the underwriters were telling the street on the roadshow?
SBUX SALES TRENDS
SBUX is on the Hedgeye Restaurants LONG Bias List.
We now know that the SBUX analyst day last week focused on long-term trends growth and did not want to cloud that picture with slowing short-term trends. Instead, SBUX on the Wolfe Research Consumer Access Day says sales were slowing. The coffee chain reported a further softening of U.S. comparable sales trends in December after the 4% drop in November and a 3% decline in October. On the positive side, a full comparable sales recovery is expected in China by the end of Q1 of FY21, although they did note a slowing in China too in November.
BRINKER INTERNATIONAL
EAT is a Hedgeye Restaurants Best Idea LONG.
Yesterday, the company said Chili’s sales slowed from (1%) at the end of October to (12.3%) in early December. Over the same time frame, Maggiano’s went from (34%) to (63%). The company withdrew FY2Q guidance. As a reminder, EAT comparable restaurant sales exclude new restaurants until they have been in operation for more than 18 months. Comparable restaurant sales include sales of virtual brands generated from those restaurants. As of October 28, 2020, approximately 92% of Chili’s and 90% of Maggiano’s restaurants operated with open dining rooms. As of December 9, 2020, about 77% of Chili’s and 69% of Maggiano’s restaurants worked with dining rooms available. According to the most recent third-party data from Knapp-Track, Chili’s comparable restaurant sales have been, on average more than 12% better than comparable restaurant sales for the casual dining industry during FY2Q. On average, Chili’s comparable restaurant traffic has been approximately 16% better than comparable restaurant traffic for the casual dining industry for the same period. According to the PR, EAT total available liquidity was $646 million as of December 11, 2020, including revolver availability of $593 million and cash of approximately $53 million.
Chicken takeaways from Sanderson Farms (SAFM)
- Restaurant distributor orders were said to be still down 28-20% in December.
- Management said that if they locked in the current market, prices for corn and soybeans next year’s feed costs would be $193M higher than this year. 2020 was the 8th straight year of relatively flat or lower feed costs, but management expects costs to increase in 2021. Corn and soybeans are the input for a large amount of food and non-food items. The higher costs are expected to hit the P&L in the next quarter.
- The USDA currently estimates that the poultry industry will produce 1% more pounds of chicken in 2021, which management believes is a good estimate.
- Management said, “We are encouraged by reports of a chicken sandwich war in 2021 in the QSR market.” Management later added, “We are aware of one major QSR participant building inventory, just one, and preparing for their rollout of a chicken sandwich.”
Video Library
DASH Black Book: Subscribers CLICK HERE for video replay and slides.
DASH Speaker Call: Subscribers CLICK HERE for video replay and slides.
QSR Black Book: Subscribers CLICK HERE for video replay and slides.
EAT Black Book: Subscribers CLICK HERE for video replay and slides.
BYND Black Book: Subscribers CLICK HERE for video replay and slides.
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