Top Three Themes on the Menu
The Thomson Reuters Restaurant Same Store Sales Index forecasts a sluggish 0.8% SSS increase in Q1 2014, on track to miss the 0.9% advance recorded in the same period last year. The Quick Service sector ex-McDonald’s (MCD.N) appears to be the strongest sector for Q1 2014 at a 3.0% gain, still slightly below the 3.2% increase in Q1 2013. This group of restaurants is facing difficult sales comparisons from a year ago.
The harsh cold weather kept consumers cooking at home. However, when they went out, they didn’t skip the warm cup of Joe. This helped boost sales at Starbucks (SBUX.O) and Krispy Kreme Doughnuts (KKD.N). In general, diners aren’t spending much. As a result, the Quick Service group is outperforming the somewhat higher-priced Casual Dining restaurants. Analysts expect continued cost pressure from beef and avocados in the second half of the year.
Within the restaurant universe, guidance is very negative for Q1, with 5.0 negative pre-announcements for each positive one (5 negative, 1 positive, 3 in line with expectations).
Thomson Reuters Restaurant Same Store Sales
Q4 2010 – Q1 2014 SSS
Exhibit 1. Q1 2014 Restaurants SSS See Slower Growth than a Year Ago
Source: Thomson Reuters I/B/E/S Estimates.
Note: Aggregate mean data is revenue weighted.
Quick Service sector
The Quick Service sector has a 1.6% SSS estimate, slightly below the 1.8% pace set in Q1 2013. The group contains some of the strongest performers in the index. Chipotle Mexican Grill, Inc. (CMG.N) has the strongest comp estimate in our restaurant universe; at 8.8%, considerably stronger that its Q1 2013 result of 1.0%. Analysts are optimistic on the company’s growth strategy with ShopHouse and Pizzeria Locale. Moreover, the use of healthy ingredients at good value is definitely driving traffic at these restaurants. The cold weather also drove consumers to pick up their morning cup of coffee. In addition to growing same store sales, SBUX earnings are expected to rise by nearly 10% this quarter. The company’s StarMine Combined Credit Risk (CCR) model score, correspond to implied credit ratings of AA or better, suggesting SBUX is financially stable. Meanwhile, Krispy Kreme Doughnuts, Inc. is facing the hardest 11.4% SSS comparison from a year-ago, in our retail universe. Still, it has a 2.2% SSS comparison for the current quarter. At the same time, McDonald’s has the biggest weighting in the index. Excluding the latter, the sector improves to a 3.0% SSS estimate, slightly below the 3.2% gain seen in Q1 2013. MCD is on track to post its second consecutive quarter of negative and lowest estimate in the sector at -1.1%, due to its Asia Pacific Middle East and Africa group’s 0.2% SSS. Likewise, Burger King Worldwide (BKW.N) is expected to post a -0.6% SSS estimate, its US and Canada division is bringing the company overall SSS down.
Casual Dining group
The estimate for the Casual Dining group is currently -1.0% for Q1 2014, slightly above the -1.1% result posted in Q1 2013. Excluding Darden Restaurants Inc. (DRI.N), the sector improves to 0.7%, slightly below its 0.9% Q1 2013 result. Darden Restaurants (DRI.N) and Ruby Tuesday Inc. (RT.N) already reported the lowest results in the Casual Dining group at -5.6%, and -1.9%, respectively. Meanwhile, Famous Dave’s of America (DAVE.O) and BJ’s Restaurant, Inc. have SSS estimates of -3.6%, and -3.1%, respectively. These restaurants are struggling to grow sales given consumer reluctance to eat out during the harsh winter weather in the beginning of the quarter. Weakness at Darden Restaurants stems from its Red Lobster division, which saw same store sales decline by 8.8%. The bright spot in the sector is Buffalo Wild Wings Inc. (BWLD.O), with its 4.9% SSS estimate. StarMine analysts believe the company has solid fundamentals, controlled costs very well, and has been resilient when the industry has been weak.
Top 6 and Bottom 6 SSS Estimates
WHO WILL POST THE STRONGEST AND WEAKEST Q1 2014 SSS?
Exhibit 2. CMG Is on Top, While RT Is Expected to Post the Weakest Negative SSS
Source: Thomson Reuters I/B/E/S Estimates.
Receive stories like this to your inbox as they are published. Subscribe here and follow us @Alpha_Now on Twitter. If you are looking to access Thomson Reuters data or analytics, register for a free trial.
