Quick service restaurants stayed popular in Q1 2015 as the overall dining-out scene improved from last year. The Restaurant Same Store Sales Index forecasts a 2.6% SSS increase in Q1, an improvement from Q1 2014’s 0.9% result, but flat in comparison with the Q4 2014 number. The fast food sector ex-McDonald’s (MCD.N) appears to be the strongest sector at a 4.8% gain, suggesting a decent gain while also facing easy sales comparison from a year ago (2.2% increase in Q1 2014).
The use of healthy ingredients at good value is definitely driving traffic at Chipotle Mexican Grill Inc. (CMG.N), vs. MCD, which posted a 2.3% decline in stores open for at least one year. In our retail universe, Chipotle has the strongest Q1 Same Store Sales result at 10.4%, below its final estimate of 11.7%. Chipotle succeeded in keeping costs low, while providing healthy organic eateries during the quarter. A pork shortage affecting the supply of its carnitas taco filling did not affect its business. On the flip side, Yum! Brands Inc. (YUM.N) missed its revenue expectations. The company is still hurting from a meat recall in China over a year ago. As a result, same store sales dropped 12% in China.
RESTAURANT SAME STORE SALES Q4 2010 – Q1 2015 SSS
Exhibit 1. Q1 2015 Restaurants SSS Growth Comes to a Pause
Source: I/B/E/S estimates
Note: Aggregate mean data is revenue weighted.
Exhibit 2. Q1 2015 SSS Expectations vs. Q1 2014 Results (For 34 Restaurants)
Source: I/B/E/S estimates
Checking the menu
The Quick Service sector has a 2.2% SSS estimate, slightly above the 1.9% pace set in Q1 2014. The group contains some of the strongest performers in the index. Chipotle reported 10.4% gain compares to a 13.4% increase a year ago, the toughest comp in our retail universe. Similarly, Papa John’s International Inc. (PZZA.N) is also facing a difficult 11.4% SSS comparison from a year ago. However, it is expecting a weaker 3.1% 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 5.7% SSS estimate, above the 5.3% gain seen in Q1 2014.
The estimate for the Casual Dining group is currently 3.5% for Q1 2015, above the -1.5% result posted in Q1 2014. Excluding Darden Restaurants Inc. (DRI.N), the sector improves to 4.0%, above its 0.8% Q1 2014 result. Darden already reported a 3.6% result in the Casual Dining group. Strength at Darden stems from its Capital Grille division, which saw same store sales rise by 6.1%. Meanwhile, Famous Dave’s of America (DAVE.O) has the weakest SSS estimates of -1.8%. These restaurants have been struggling to grow sales for three years. The bright spot in the sector is Buffalo Wild Wings Inc. (BWLD.O), with its 8.1% SSS estimate, above its 6.6% SSS year-ago result. The company’s StarMine Combined Credit Risk (CCR) model score, correspond to implied credit ratings of AA or better, suggesting Buffalo Wild Wings is financially stable.
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