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Americans Cutting Back on Restaurants |
HenryTo
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 Posted: Mon Sep 24, 2007 11:50 pm Post subject: Americans Cutting Back on Restaurants |
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Dining out the first to go when Americans tighten their belts:
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Consumers cutting back on restaurants: survey Mon Sep 24, 3:49 PM ET
LOS ANGELES (Reuters) - More than half of U.S. consumers plan to eat out less in the next three months due to jitters over declining home values, high gas prices and the overall economy, according to a survey by RBC Capital Markets.
The survey of 1,000 people found that 54 percent of Americans said they would eat at restaurants less often over the next three months. Two of five respondents said they are already dining out less frequently than they were six months ago.
"Volatile stock markets, declining home values, higher energy costs and overall concern about the economy are reducing Americans' appetite for dining out," RBC analyst Larry Miller said in a statement.
The survey's results come as many sit-down restaurant chains are struggling to reel in customers, while cheaper fast-food restaurants are generally seeing strong sales.
Last week, bar-and-grill chain Ruby Tuesday Inc. warned that its quarterly earnings would fall short of Wall Street estimates as higher gas prices, interest rates and competitive discounting hurt sales.
In contrast, hamburger chain McDonald's Corp. a week earlier reported an 8.1 percent rise in August same-store sales, easily beating analysts' expectations on strong breakfast and beverage sales in the United States.
Nevertheless, price is not the main factor consumers consider when choosing a restaurant, the survey said.
Fifty-five percent said food quality was the biggest driver, while 18 percent said menu offerings. Just 12 percent of respondents said price was their main consideration, and 10 percent said convenience.
Women, baby boomers, people with household incomes under $50,000 and residents of the U.S. Northeast and South were the most likely to have cut back on restaurant meals, the survey said.
The 11 percent of respondents who said they have been eating out more are mostly young, single males who prefer fast food, RBC said. |
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Americans Cutting Back on Restaurants Replies |
HenryTo
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| Posted: Tue May 08, 2012 1:08 pm Post subject: |
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Morningstar on WEN's 1Q results.
| Quote: | | After an optimistic end to 2011, Wendy's WEN turnaround efforts took a step back in the first quarter with same-store sales and company-operated restaurant margins falling short of management's outlook, consensus estimates, and our internal forecast. Coming on the heels of the 5.1% increase in company-owned same-store sales last quarter, first-quarter growth of 0.8% (or 0.5% using the previous reporting methodology) was a disappointment and suggests that new product launches, tiered pricing, targeted marketing, and reimaging activity have not been enough to curb market share erosion. The soft top-line results also diluted company operating margins, which fell 160 basis points to 11.8%. While food costs were anticipated to be a drag on margins heading into the quarter (management had previously forecast a 115- to 145-basis-point increase in food costs as a percentage of company-owned restaurant revenue for the year), it's clear that the company is seeing deleverage on the labor and occupancy expense lines as well. As a result, management trimmed its full-year adjusted EBITDA forecast range by roughly 4% to $320 million-$335 million, down from $335 million-$345 million. However, management left its long-term adjusted EBITDA growth targets in place (high-single-digit to low-double-digit growth), citing restaurant opening plans, marketing, reimaging and product innovation plans. We are not planning an immediate change to our $6 fair value estimate, though we acknowledge that this first-quarter performance puts the company well short of our near-term estimates and will adjust our 2012 forecasts accordingly. The first-quarter results also call into question management's long-term adjusted EBITDA growth targets, though we generally believe mid-single-digit revenue growth and moderate margin expansion is still achievable over the next several years (with consolidated operating margins eventually reaching the low-double-digit range, consistent with other quick-service restaurant operators). Nevertheless, a continuation of first-quarter trends over the next several quarters would force us to revisit our long-term valuation assumptions. Although shares appear undervalued relative to our fair value estimate and comparative industry multiples, we believe that more risk-averse investors would be better suited on the sidelines until the company can demonstrate its ability to deliver consistent same-store sales results and operating expense leverage. |
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HenryTo
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| Posted: Fri Mar 23, 2012 10:06 am Post subject: |
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Morningstar on DRI's fiscal 3Q earnings.
| Quote: | | Darden Restaurants' DRI fiscal third-quarter earnings release was in line with previously released guidance. Total sales were up 9.3% to $2.2 billion, thanks to combined same-restaurant sales growth of 4.1% for the core brands (Red Lobster, Olive Garden, and LongHorn Steakhouse) and 5.8% for the smaller, faster-growing specialty restaurant group and the contribution from 91 net new restaurants, including the addition of 11 Eddie V's acquired in late 2011. More than half of the core brand same-restaurant sales growth is attributable to better weather and a shift of the Lenten season versus the prior year. Still, Darden continues to outperform the industry benchmark, as Knapp-Track same-restaurant sales were up only 2.6% for the quarter. By segment, Red Lobster and LongHorn Steakhouse realized robust growth, up 6.7% and 6.0%, respectively, and Olive Garden same-restaurant sales turned positive, up 2.0% thanks to improved traffic and pricing trends as management has been keenly focused on improving the brand. The operating margin was up 10 basis points to 11.4% as Darden was able to successfully mitigate rising food costs (up 170 basis points as a percentage of sales) with reductions in labor expenses (down 100 basis points) and lower selling, general, and administrative costs (down 70 basis points). Management slightly raised its 2012 outlook, with full-year total sales growth of 7.0%-7.5% (versus 6.0%-7.0% previously), and earnings per share growth of 4.0%-7.0% from combined core same-restaurant sales growth of 2.5%-3.0% (2.0%-3.0% previously), and 85-90 net new restaurants (80-90 previously). The shar es look only slightly overvalued to us, trading around $50; we believe the recent performance has come from overall positive sentiment on the economy, coupled with Darden's well-established, dominant restaurant brands, a portfolio of emergent growth concepts, and healthy 3.6% dividend yield. |
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HenryTo
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| Posted: Thu Mar 01, 2012 4:26 pm Post subject: |
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Morningstar on WEN's latest financial results.
| Quote: | | In line with previously released results, Wendy's WEN released full-year 2011 financials that reflected a more solid and focused quick-service restaurant chain, in our view. We are encouraged by the firm's ongoing initiatives--namely, new products, a tiering strategy, and a remodeling and reimaging program, which are driving near-term results. The firm's comparable-sto re sales have now turned positive, though still below rivals' levels, and we view continued new product innovations, the maintenance of value menu items, the long-anticipated national rollout of breakfast, expansion into the late-night daypart, and international expansion--which we expect to accelerate thanks to partnerships with large franchisees abroad--as positive catalysts for the chain. Though we plan to reduce our fair value estimate to $6 per share from $7 to account for higher reimaging capital expenditure requirements, we still believe the shares are undervalued. For the year, same-restaurant sales rose 2%, which combined with 18 net new restaurants led to a total sales increase of 2.4% to $2.4 billion. This is a vast departure from the past two years, as the firm posted same-restaurant sales declines of nearly 2%. Input costs ate into restaurant margins, which declined 80 basis points to 14.0% and led to a slight drop in adjusted EBITDA to $331 million. For 2012, m anagement expects adjusted EBITDA growth of 1%-4% to $335 million-$445 million, which assumes flat to 50 basis points of restaurant margin expansion despite a 115-to 145-basis-point rise in food costs. We're also focused on the 26% rise in capital expenditures to $225 million, which will primarily fund 50 remodeled restaurants and 20 new restaurants. The remodeled and new restaurants will have a modern feel, designed to drive customer traffic. Additionally, the chain expects to expand its North American restaurant base by 60 and international base by 55 and enter new markets. We continue to believe international growth represents a solid opportunity for the chain. Wendy's has much lower penetration overseas than competitors, with only 5% of restaurants outside the United States, compared with almost half for Yum YUM and McDonald's MCD. Over the longer term, management believes that its international restaurant base could exceed 8,000 versus 350 currently. While we're optimistic on the firm's international growth potential, we estimate the firm can grow to just over 1,000 restaurants internationally over the next 10 years. We believe the market is underestimating Wendy's ability to recover as customers eventually loosen the purse strings and trade up in quality at a slightly higher price and as the chain introduces new product platforms. We expect Wendy's same-restaurant sales growth to accelerate over the next few years to a roughly 4% annualized rate as the firm is able to better focus on new product introductions and a reinvigorated marketing campaign after it successfully sold the struggling Arby's chain in 2011. This, coupled with new store growth of nearly 200 restaurants per year, primarily abroad, should lead to total sales growth around 5%. In our opinion, operating margins will gradually improve over this period as commodity cost pressures abate and management refines its cost structure without Arby's. We believe margins can reach the low double digits over the next few years (more in line with industry averages), up from 7.5% in 2010, consistent with management's target of average annual adjusted EBITDA growth in the high-single-digit to low-double-digit range in 2013 and beyond. |
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HenryTo
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| Posted: Fri Dec 16, 2011 11:33 pm Post subject: |
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Morningstar on DRI's final fiscal 2Q earnings.
| Quote: | | Darden Restaurants' DRI fiscal second-quarter earnings release contained few surprises, as the firm had announced its expected results more than a week ago. Total sales were up 6.1% to $1.8 billion thanks to combined same-restaurant sales growth of 1.8% for its core brands and 3.9% for its smaller, faster-growing specialty restaurant group and the contribution from 73 net new restaurants. Darden continues to outperform the industry benchmark, as Knapp-Track same-restaurant sales were only up 0.6% for the quarter. By segment, Red Lobster and LongHorn Steakhouse realized robust growth, up 6.8% and 6.0%, respectively, while Olive Garden continued to underperform with a decline of 2.5%. Weak traffic and menu mix were to blame, but management is keenly focused on rebuilding the brand through new promotional and core menu offerings, enhanced advertising, and store remodels. However, the firm noted that these efforts will take time. The operating margin was off 200 basis points to 5.3%. As we predicted, when Darden lowered its earnings per share guidance last week, food costs hit the firm harder than expected and Darden was unable to fully mitigate the higher input costs (up 264 basis points as a percentage of sales) though reductions in labor expenses (down 69 basis points as a percentage of sales) and lower selling, general, and administrative costs as a percentage of sales (20 basis points) helped. However, the firm expects reduced cost inflation in the back half of its fiscal year. Lastly, Darden's acquisition of Eddie V's was completed in the quarter, and the firm expects the acquisition to be a net neutral for the full year. Darden affirmed its full-year outlook of total sales growth of 6%-7% and earnings per share growth of 4%-7% fro m combined core same-restaurant sales growth of 2%-3% and 80-90 net new restaurants. We assert shares are slightly undervalued relative to our unchanged $47 fair value estimate, as we expect Darden will reverse its margin losses in coming quarters. Management is diligent on contracting food costs, and we expect the firm will be able to leverage other expenses on its growing top line. A further pullback in the shares could create a more opportunistic entry point for investors, given Darden's narrow economic moat, portfolio of emergent growth concepts, and healthy 3.6% dividend yield. |
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HenryTo
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| Posted: Tue Dec 06, 2011 12:48 pm Post subject: |
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Morningstar on DRI's fiscal 2Q earnings:
| Quote: | | Darden Restaurants DRI warned in advance of its second-quarter earnings release, scheduled for Friday. The firm expects second-quarter earnings per share of $0.41, with combined same-restaurant sales growth of 1.8% for its core brands and 3.9% for its smaller, faster-growing specialty restaurant group. Red Lobster and LongHorn Steakhouse realized robust growth, up 6.8% and 6.0%, respectively, while Olive Garden continued to underperform with a decline of 2.5%. Weak traffic and menu mix were to blame, but management is keenly focused on rebuilding the brand through new promotional and core menu offerings, enhanced advertising, and store remodels. We will look to hear more detail on Friday's call. More important, Darden reduced its fiscal 2012 forecast. While the to p line was only reduced slightly, the change in earnings per share guidance got our attention. Management now expects total sales growth of 6%-7% (versus 6.5%-7.5% previously) and combined core same-restaurant sales growth of 2%-3% (versus 3% previously). The target of 80-90 net new restaurants was unchanged. However, Darden now forecasts earnings per share growth of 4%-7%, instead of the 12%-15% it previously predicted. No details were provided on this reduction, but we suspect food costs hit the firm harder than expected and Darden was unable to mitigate the higher input costs with reductions in labor and restaurant expenses. We plan to adjust our discounted cash flow model to account for this but do not anticipate a change in our $47 fair value estimate, as we expect Darden will reverse its margin losses in coming years. A pullback in the shares could create an opportunistic entry point for investors, given Darden's narrow economic moat, portfolio of emergent growth concepts, and healthy 3.6% dividend yield. |
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HenryTo
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HenryTo
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Location: Los Angeles, California
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HenryTo
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| Posted: Wed Sep 28, 2011 12:16 pm Post subject: |
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Morningstar on DRI's fiscal 1Q results:
| Quote: | | Darden Restaurants DRI continued to outperform in its first fiscal quarter, with core brand same-restaurant sales growth of 2.8%, compared with 1% growth for the Knapp-Track industry same-restaurant sales benchmark. We attribute the performance to strong brand loyalty and an emphasis on everyday value offerings. This, coupled with 71 new net restaurants, led to 7.5% top-line growth for the quarter. Darden affirmed its fiscal 2012 outlook, which is in line with our expectations. We forecast roughly 7% top-line growth, driven by low- to mid-single-digit same-restaurant sales for the core brands and 90 new net restaurants. We continue to view the shares as fairly valued at around $47, but remain concerned that a correction among restaurant stocks may occur as macroeconomic pressures and menu price increases from earlier in the year weigh on traffic industrywide. That said, a pullback could create an opportunistic entry point for investors, given Darden's narrow economic moat, portfolio of emergent growth concepts, and healthy 3.6% dividend yield. Darden's operating margin was off 150 basis points to 8.7%, primarily because of a 250-basis-point swing in food and beverage costs, as the higher-than-usual costs in the current quarter compared poorly with the lower-than-average costs in the prior-year quarter. Management said 80 basis points of this impact was attributable to a lower average check as customers tighten the purse strings in this uncertain economic environment. Lastly, Hurricane Irene hurt margins by 15 basis points. Still, we continue to be impressed by Darden's selling and general administrative and labor cost management, offsetting the impact of food by a combined 110 basis points. For the full year, we still expect modest 30-basis-point operating margin growth to 10.2%, as we believe commodity pressures will ease. By segment, Red Lobster and LongHorn Steakhouse posted strong top-line growth of 12.3% and 12.1%, respectively, thanks to same-restaurant sales growth of 10.7% and 5 new net restaurants for Red Lobster and same-restaurant sales growth of 4.8% and 23 new net restaurants for LongHorn. Olive Garden continued to disappoint, with sales growth up slightly at 0.8% due to 30 new restaurants, partially offset by a 2.9% same-restaurant sales decline. Management is working to improve the brand, acknowledging that Olive Garden will require more significant business changes going beyond simply offering better promotions. These will include a new advertising campaign intended to reinvigorate the brand, a new core menu featuring more everyday value items, and a remodel program that refreshes the dining environment. We note that trends improved in August with same-restaurant sales down only 1.3% (ad justed for the impact of Hurricane Irene). Lastly, the specialty restaurant group (Capital Grille, Bahama Breeze, and Seasons 52) experienced a robust 20.7% revenue growth thanks to 5.1% combined same-restaurant sales growth and 12 new restaurants. |
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rffrydr
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| Posted: Wed Sep 07, 2011 8:12 pm Post subject: |
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Paradox of thrift....restaurants are one of the first and best examples....after pints of premium ice cream.
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HenryTo
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| Posted: Wed Sep 07, 2011 1:30 pm Post subject: |
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That said, DRI is increasing its outlook for fiscal 2012. Following is courtesy of Morningstar:
| Quote: | | Darden Restaurants DRI gave its outlook Tuesday for first-quarter results, due Sept. 28, and adjusted it fiscal 2012 estimates slightly. When management presented fiscal 2011 results in June, it had said that core brand (Red Lobster, Olive Garden, and LongHorn Steakhouse) same-restaurant sales growth was trending in the 5%-6% range for the first fiscal quarter. In June, Red Lobster and LongHorn posted 19.9% and 6.5% same-restaurant sales growth, respectively. However, Hurricane Irene damped the brands' August performance and the firm now estimates that same-restaurant sales for the core brands were adversely affected by 20-30 basis points in the quarter because of a cumulative 151 days of restaurant closures. Management has also been disappointed by results at Olive Garden, with same-restaurant sales trending down 2.9% for the quarter, but said it was confident that it was adequately addressing the brand's issues. We will look for more color when the firm reports earnings. Darden guided to combined same-restaurant sales growth for the core brands of 2.8%. It expects first-quarter earnings of $0.78 per share, off 2.5% from the prior-year period but flat when removing the impact of Hurricane Irene. For fiscal 2012, management now expects core brand same-restaurant sales growth of 3% (versus 2.5% previously) and 6.5%-7.5% overall revenue growth (versus 6%-7% previously). Management said the margin pressure it was facing due to rising food costs would continue in the second quarter and moderate in the second half. We are still confident that Darden will be able to mitigate commodity pressures with continued productivity improvements and limited promotional activity. The firm still predicts 2012 earnings per share growth will be 12%-15%, but cautioned that it is more comfortable with the lower end of this range. Lastly, Darden announced it would repurchase more shares in fiscal 2012 than previously anticipated: $450 million-$500 million, versus $350 million-$400 million previously. We continue to view the shares as fairly valued at around $47, as we are still comfortable with our fiscal 2012 estimates in light of the small change in guidance and the fact that the increase in share-repurchase activity does not materially affect our discounted cash flow model. We remain concerned that a correction among restaurant stocks may occur as food cost pressures become more pronounced industrywide, but we believe a pullback could create an opportunistic entry point for investors, given Darden's narrow economic moat, portfolio of emergent growth concepts, and healthy dividend yield. |
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HenryTo
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| Posted: Sat Aug 27, 2011 1:58 pm Post subject: |
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| The college-educated millennials/Gen-Yers would not be caught dead in an Applebee's or Ruby Tuesday. That's just a fact. |
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rffrydr
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| Posted: Sat Aug 27, 2011 8:37 am Post subject: |
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Generational change happenin' in restaurants. McDee's does nice reinvention but the time factor and sales pitch of chains exhausts the 20-somethings.
http://www.bloomberg.com/news/2011-07-01/applebee-s-tries-girls-night-out-to-win-five-guys-burger-fans.html
Just got a Five Guys in Coachella and I still don't see why we don't take it lower to In N' Out. I take it as an indication there's still some interest in the "trappings." Just kill the "tip"--and the sales pitch with it. Waitkiddies don't know chit about what they sell anymore anyways.
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HenryTo
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| Posted: Thu Aug 11, 2011 11:10 pm Post subject: |
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Morningstar on WEN's 2Q results:
| Quote: | | Wendy's WEN reported its first results without Arby's on Thursday. Second-quarter top-line numbers reflected solid growth, but higher commodity costs continued to pressure margins. Total sales were up 9.1% to $622.5 million on a 2.3% same-store sales increase and store location growth, primarily internationally. The restaurant margin was off 250 basis points to 13.9% because of higher commodity costs and advertising spending. Accordingly, while the firm reaffirmed its expectation of same-store sales growth of 1%-3% for the year, in line with our estimates, management softened its margin outlook to a 50- to 100-basis-point decline. This marks the second time this year management has adjusted its margin expectations for higher-than-expected commodity prices. We had anticipated this margin contraction in our discounted cash flow model, as it supports our thesis that no-moat restaurant chains such as Wendy's would have limited power over suppliers to prevent material cost increases and little power over customers to raise prices. By contrast, we believe wide-moat quick-service restaurant operator McDonald's MCD will still drive modest operating margin increases this year despite facing similar food cost inflation pressures. We plan to review our assumptions now that the firm has presented adjusted year-to-date numbers excluding Arby's, but we do not anticipate a material change to our fair value estimate, as the Arby's brand wasn't material to the long-term cash flow assumptions in our previous model. |
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HenryTo
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| Posted: Fri Jul 01, 2011 12:27 pm Post subject: |
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Morningstar on DRI's 4Q earnings. Casual dining still building stores--and haven't lobster prices actually declined?
| Quote: | | We are maintaining our $47 fair value estimate for Darden Restaurants DRI after the company reported fiscal 2011 results that were in line with previous guidance, and we view the shares as fairly valued. Fiscal 2012 guidance calls for acceleration of store growth and continued margin expansion, which we've already included in our discounted cash flow assumptions. Management expects full-year core brand same-restaurant sales growth around 2.5% and 80-90 new restaurants, leading to 6%-7% revenue growth. The first fiscal quarter is already off to a strong start, as management said core brand same-restaurant sales growth is trending in the 5%-6% range. Margin expansion should continue in 2012 despite rising food costs, thanks to continued productivity improvements and limited promotional activity. The firm predicts 2012 earnings per share growth will be in the 12%-15% range. Lastly, Darden raised its annual dividend 34% to $1.72 per share. We remain concerned about a correction among restaurant stocks as food cost pressures become more pronounced industrywide, but we believe a pullback could create an opportunistic entry point for investors, given Darden's narrow economic moat, portfolio of emergent growth concepts, and healthy dividend yield. Restaurant expansion continued to boost Darden's sales growth, as it accounted for the majority of total sales growth. Total sales rose 5.4% for the fiscal year (4.1% from new restaurants and 1.4% from same-restaurant sales). The firm achieved strong same-restaurant sales growth at LongHorn Steakhouse (up 5.4%), which offset weaker growth at Olive Garden (1.2% ) and Red Lobster (0.3%). Red Lobster's same-restaurant sales are trending better, but the fourth-quarter improvement reflects the extension of the Lobsterfest promotion--not a sustainable way to drive growth. To this end, the firm has enhanced its marketing and will remodel restaurants to improve the customer experience. Overall, Darden continues to trend more favorably compared with the Knapp-Track industry benchmark, which was up just 0.8% for the year. As we expected, food and beverage costs as a percentage of sales rose slightly (14 basis points), as some commodity contracts rolled off. However, overall profitability still improved 90 basis points from the prior year to 9.9%, thanks to a 109-basis-point decline in restaurant labor costs as a percentage of sales because of productivity improvements and low turnover levels. From our perspective, this supports our thesis that Darden will continue to overcome rising costs. Food and beverage cost inflation is a concern for m any restaurant companies we cover. However, we do not expect this rise in costs to weigh on Darden's profitability, with continued margin improvement in fiscal 2012. |
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HenryTo
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| Posted: Mon Jun 13, 2011 11:34 am Post subject: |
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Morningstar on private equity's activity in the restaurant space:
| Quote: | | Consistent with the firm's stated intentions earlier this year, Wendy's Arby's Group WEN announced that it has agreed to sell an 81.5% interest in Arby's to a buyer formed by private equity firm Roark Capital Group, owner of the Auntie Anne's, Cinnabon, McAlister's Deli, and Wing Stop brands. The announcement confirms our belief that private equity's appetite for restaurants remains voracious. With restaurants meeting the typical leveraged-buyout target profile of strong free cash flow generation and manageable debt obligations, private equity activity is once again ramping up in the restaurant space. Interestingly, according to multiple sources, Roark signed an agreement to acquire the Corner Bakery Cafe and Il Fornaio brands from Bruckmann, Rosser, Sherrill & Co . last month. The aggregate transaction value is estimated to be $430 million, which we deem as an attractive price, considering the brand had an operating loss of $50 million in 2010. Based on similar transactions in the restaurant industry during the last year, we deem 6 to 8 times EBITDA as an appropriate acquisition multiple for Arby's. We previously forecast a takeover value of $300-$400 million, based on normalized 2012 EBITDA for the Arby's brand of around $50 million. Wendy's/Arby's Group will receive approximately $130 million in cash and the buyer will assume approximately $190 million in Arby's lease-related debt. Additionally, Wendy's/Arby's will realize an $80 million income tax benefit during the next few years. The transaction is expected to close in the third quarter, subject to approvals and other closing requirements. Management reiterated Wendy's 10%-15% EBITDA growth expectations for 2012 and beyond. We believe a separation of the two brands will allow the firm to focus on the more successful Wendy's chain. Arby's has been a drag on results since the combination in late 2008. In our view, its lack of a value menu during the economic downturn was the primary factor for the brand's abysmal double-digit same-restaurant sales declines. We plan to adjust our discounted cash flow model to account for the sale of Arby's, but do not anticipate a material change to our fair value estimate, as Arby's had been a relatively smaller portion of our estimate of the combined entity going forward. We also do not anticipate a change in our BB issuer credit rating, as the leases associated with Arby's are a small portion of the firm's more than $2 billion lease-adjusted debt. |
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