CMG inflation Issues are not just labor-related
Moving to SHORT
Over the past month, we have been commenting on the tone of the CMG Reddit rants, and they are full-on a real issue for the company. CMG needs to raise its wages to get people back to work, which they are doing. We see enough incremental evidence that CMG sees a significant labor shortage that can't open its dining rooms in many places due to labor shortages. This could ultimately impact the pace of sales recovery but will also raise wage pressure. CMG's average wage is $12 for the crew and $13 for all hourly employees.
Given that many retailers are at a $15 number, CMG is going there, but is that enough? The company has stated that an across-the-board 10% increase in wages would impact 200 basis points without raising prices and believes that a 2% to 3% price increase would cover it. Add to these prices to cover delivery costs and other inflationary pressures, and the sale end margin recovery story will be coming to an end. CMG is currently trading at 33.5x and 26.2x 2021 and 2022 EV/EBITDA, respectively. The stock has risen 93% and 65% over the past two years and 2.8% YTD.
More details to come.
