PNRA

Holy Guacamole! McDonald’s Wishing It Had Kept Chipotle

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Very few investors probably remember that Chipotle (CMG) used to be owned in part by McDonald’s (MCD). McDonald’s had originally taken a stake in Chipotle in February 1998, when Chipotle had but 14 restaurants in Denver. The maker of the Big Mac would go on to own 90% of the subsidiary and eventually spin it off in an initial public offering in January 2006. McDonald’s would receive ~$1.5 billion from the sale, but with Chipotle’s market capitalization now at over $20 billion, it’s clear the burger-and-fries behemoth exited way too early. The most recently-reported results by both restaurants tell the diverging story quite well. McDonald’s reported relatively disappointing second-quarter results Tuesday. The performance can best be described as flat. Global … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Restaurant Industry Update

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The fast-food (quick-service) breakfast wars have intensified. It has become a high-stakes game for all participants, and most have gone all-in to capture market share, to use poker parlance. The NPD Group, a leading global information firm, noted that the pace of expansion for fast-food breakfast across the restaurant industry has been a key bright spot, and executives across the industry are taking note: Quick service, which accounts for about 80 percent of total restaurant morning meals, showed the strongest increase in breakfast visits of all restaurant segments with a 4 percent increase in the year ending December 2013 period compared to year ago, reports NPD CREST, which every day tracks how consumers use restaurants and other foodservice outlets. Morning … Read more

Starbucks’ Investors Are Forgetting That Coffee Costs Can Go Back Up; Shares Lack Valuation Support

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Starbucks (SBUX) has one of the strongest and most-recognized brands in the world. We think its brand name is largely responsible for it being able to charge lofty prices on its coffees and drinks, despite significant competition in each of its markets. Starbucks’ fiscal first-quarter results (ending December 29, 2013) reminded us of this solid position, which appears to be nearing impregnability given the strong pace of traffic trends and profit improvements. The coffee giant announced Thursday that it experienced 12% revenue growth during its fiscal first quarter thanks to strong holiday sales and solid store traffic, which drove quarterly revenue to a record $4.2 billion. Even though prices for its beverages are set at premium levels, the firm is … Read more

McDonald’s US Comparable Sales Fall

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On Monday, McDonald’s (MCD) reported lackluster November comparable sales. European comparable sales (comps) were solid, up 1.9%, but comps in the APMEA (Asia/Pacific, Middle East and Africa) and US weighed on expansion, falling 2.3% and 0.8%, respectively. Performance in the APMEA was weighed down by weakness in Japan, while US comps suffered from heightened competitive activity and relatively flat industry demand trends that were only partially offset by strength in breakfast, chicken menu choices and expanded value offerings. Systemwide sales advanced 3.1% in constant currencies during the month. The news from McDonald’s is unique in that it runs counter to a report from the National Restaurant Association, released December 2, that the Restaurant Performance Index, RPI (1), hit a four-month … Read more

Evaluating 3Q Results at Panera and Chipotle

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High-flying restaurant peers, Panera (PNRA) and Chipotle (CMG), reported divergent performance in their respective third-quarter results. Though one is a bakery and the other a high-end burrito maker, their comparable growth trajectories make them relevant peers for discussion. Panera’s third-quarter report, released Tuesday, showed relatively strong top-line and bottom-line expansion of 8% and 17%, respectively, but the real issue was with the firm’s fourth-quarter outlook. For starters, the bakery-café cut its fourth-quarter comparable sales growth expectations for company-owned restaurants to the range of flat-to-up-2% versus 3-5% previously. Panera also cut its fourth-quarter earnings-per-share guidance to $1.91-$1.97 per share from $2.05-$2.11 previously on expected margin contraction of more than 100 basis points on a year-over-year basis. Though the new bottom-line outlook … Read more

An IPO That Doesn’t Look Delicious: Potbelly

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After the extremely positive post-IPO fortune of fast food concept Noodles & Co (NDLS), the surging IPO of Potbelly (PBPB) caught our attention. Let’s take a look at the prospects of this Chicago-based sandwich chain. Background Potbelly is a Chicago-based sandwich chain famous for its toasted sub sandwiches, fresh milkshakes, and in-store musical entertainment. The concept began in Chicago’s Lincoln Park neighborhood as a toasted sub shop with eclectic decorations from the original owner’s antique shop. Current chairman and largest individual shareholder Bryant Keil purchased the original restaurant in 1996 and has since worked to turn it into a chain with 286 restaurants throughout the United States—280 owned by the company, and 6 owned by franchisees. The firm also has … Read more

Will Chipotle Serve Breakfast?

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Amid news about the lack of Fed tapering and the launch of Apple’s iPhone 5S (click ticker for report: ), news broke that fast food chain Chipotle (click ticker for report: ) was testing coffee products at one of its Washington, D.C. locations. Naturally, the question arises: is Chipotle going to serve breakfast? Why We Think It’s a Great Idea There’s little doubt that the consistent comparable same-store sales growth from the likes of Panera (click ticker for report: ), Chipotle, and Noodles & Co. (NDLS) suggests that meals eaten outside of the house continue to rise. At the moment, we’re comfortable saying that McDonald’s (click ticker for report: ) possesses the strongest breakfast offering with a mix of inexpensive … Read more

Panera Caps Off 2012 with a Fantastic Fourth Quarter

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Fast casual food seller Panera (click ticker for report: ) announced solid fourth quarter results to cap off an excellent 2012 Tuesday after the market close. Revenue jumped 15% year-over-year to $572 million, roughly in line with consensus expectations. Earnings growth was also strong, with earnings per share increasing 34% year-over-year to $1.75 per share, exceeding consensus expectations. This caps off a year in which sales at Panera jumped 17% and earnings per share increased 29%. Major metrics at Panera were incredibly positive during the fourth quarter. Company-owned same-store sales increased 5.1% year-over-year, though 5.4 percentage points of the increase was a result of higher average checks as traffic declined 0.3 percentage points year-over-year. Although we’re never happy to see traffic declining, we’re not … Read more