QSR

Chicken Sandwich Wars Heating Up In the US

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Image Shown: Rivals in the quick-service restaurant space are aggressively competing for share in the fast-growing premium chicken sandwich category following Popeyes’ considerable success the past couple years. Source: Images/logos property of the respective companies. By Callum Turcan and Brian Nelson, CFA Nothing has been the same in the fast-food industry since Popeyes launched its first nationwide chicken sandwich August 12, 2019. The release of the delicious chicken sandwich from the company named after Gene Hackman’s character Popeye Doyle in the 1971 film The French Connection may even have changed the fast-food industry as we know it. Popeyes’ “tender all-white meat chicken breast fillet, marinated in (its) authentic blend of Louisiana seasonings, then hand battered and breaded in (its) all … Read more

McDonald’s: Holding Up Well During the Pandemic

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By Brian Nelson, CFA Nothing seems to be able to stop McDonald’s. Remember the documentary Super Size Me (2004)? For those that may not have seen the award-winning film, director Morgan Spurlock filmed his experiences eating only McDonald’s food three times a day for a 30-day consecutive period. He made a point to eat every item on the menu, and if memory serves us well, anytime he was asked to “Super Size” his meal, he had to oblige. The documentary measured the effects of eating only McDonald’s food on his health in just this short period of time. During his McDonald’s-binge, Spurlock consumed an average of 5,000 calories a day, roughly twice that of a healthy diet, and he ended … Read more

COVID-19 Idea Consideration Chipotle Continues to Deliver

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Image Shown: Shares of Chipotle Mexican Grill Inc have sharply rebounded over the past month as investors started to take into consideration the firm’s pristine balance sheet, ability to meet consumer demand via delivery services, and quality cash flow profile, keeping short-term headwinds in mind. By Callum Turcan On April 21, Chipotle Mexican Grill Inc (CMG) reported earnings for the first quarter of 2020 that beat both consensus top- and bottom-line estimates. Same-store sales rose 3.3% year-over-year almost entirely due to the strength of its digital business where sales were up almost 81% and represented over 26% of Chipotle’s sales last quarter. Chipotle’s GAAP revenues were up almost 8% year-over-year last quarter though its GAAP operating income fell by over … Read more

Starbucks Reports Earnings, Coronavirus to Hurt China Sales

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Image Shown: How Starbucks Corporation views its competitive strengths. Image Source: Starbucks – December 2019 IR Presentation By Callum Turcan On January 28, Starbucks Corporation (SBUX) reported first-quarter earnings for its fiscal 2020 (period ended December 29, 2019) that modestly beat consensus expectations on the EPS front and matched consensus expectations for its revenues. Shares were broadly flat after-hours and traded down on the January 29 session. Overview Same-store sales in the US were up 6% while rising competitive pressures in China limited same-store sales growth to just 3% year-over-year. Luckin Coffee (LK) has been aggressively growing its store count in China, growing from ~625 stores in mid-2018 to 3,680 stores as of its third quarter earnings report for fiscal … Read more

Yum! Brands Buys Habit Restaurants

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Image Shown: An overview of Yum! Brands Inc’s operations. Image Source: Yum! Brands Inc – Investor Fact Sheet By Callum Turcan On January 6, quick-service restaurant chain Yum! Brands Inc (YUM) (which owns the KFC, Pizza Hut, and Taco Bell brands) announced that it was acquiring fast causal burger joint Habit Restaurants Inc (HABT) for $14 per share in cash for a total cash consideration of $375 million. Habit Burger’s footprint includes ~265 restaurants in total across more than a dozen US states and China under its namesake brand, Habit Burger Grill, and please note roughly 90% of those locations are company-owned. While Habit Restaurants’ footprint is relatively small compared to Yum! Brands’ footprint of over 49,000 locations in more … Read more

Cracker Barrel Doing Well Despite Industry Headwinds

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Image Source: 2019 Annual Shareholder Meeting, November 21. Although the restaurant business continues to face pressures, Cracker Barrel’s fundamentals have outperformed. By Brian Nelson, CFA The month of October was not kind to many in the restaurant business. While restaurant same-store sales advanced 0.06% in October, according to data from TDn2K, comparable traffic fell 3.1% during the month. While comp sales for the broader restaurant industry may remain positive through the remainder of 2019 thanks to pricing growth, the problem is that to-go and off-premise sales are hurting traffic. Here’s what TDn2K had to say about that: The erosion of guest counts remains unchanged, as restaurants rely on to-go and off-premise sales to fuel growth. Third-party delivery is playing a … Read more

McDonald’s Enters the Chicken Sandwich Wars

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Image Shown: Shares of McDonald’s Corporation have pulled back over the past couple of months after an epic run during most of 2019, which we view as the market recognizing shares of MCD had gotten way ahead of themselves. By Callum Turcan McDonald’s (MCD) is testing out a new crispy chicken sandwich offering in two US cities; Knoxville, Tennessee and Houston, Texas. This pilot project is expected to run through January 2020. While McDonald’s offers the ‘McChicken, its new chicken sandwich offering is far more substantial (the McChicken is to a chicken sandwich what the ‘McDouble’ is to a burger) and meant to compete with offerings from privately-held Chick-fil-A and Restaurant Brands International Inc’s (QSR) Popeyes Louisiana Kitchen. We still … Read more

A Tale of Two Big Agricultural Industries: Protein Producers Win and Farm Equipment Manufacturers Lose After Recent USDA Report

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Image Shown: The tale of two big agricultural companies in one chart, with shares of poultry producer Sanderson Farms Inc (SAFM) shooting up on Monday, August 12, as chicken feed prices fell after a recent USDA report (which sent corn prices sharply lower) while shares of agricultural equipment manufacturer AGCO Corporation (AGCO) tanked as the market priced in continued pressure on US farm incomes and the dynamic impact that has on demand for farm equipment. By Callum Turcan On August 12, the USDA released a report that stated US farmers had planted more corn than expected at 90 million acres (2.6% higher than consensus estimates) and that forecasted corn yields were also higher than expected at 169.5 bushels an acre … Read more

Beyond Meat’s Market: $5 Billion or $1.5 Trillion?

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Image: The Beyond Burger accounted for about 70% of the company’s sales in 2018. The big question: how big is Beyond Meat’s opportunity? Is it $5 billion or $1.5 trillion? By Valuentum Analysts Shares of Beyond Meat Inc (BYND), one of the fastest-growing plant-based meat companies, have exploded higher since the meatless-meat producer went public in May. While this isn’t a stock we normally would like given the short operating history and lofty market expectations, we wanted to draw attention to the enormous potential Beyond Meat is targeting. As of the market close on June 10, Beyond Meat had a market capitalization of $10.1 billion. We estimate that if Beyond Meat is able to generate an adjusted EBITDA margin in … Read more

Comps Accelerate and Margins Expand in Chipotle’s Third Quarter

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Image Source: Mike Mozart The once beaten down fast casual restaurant chain Chipotle is back to delivering solid comparable restaurant sales growth thanks to menu price increases, and restaurant level operating margin expanded significantly as lower marketing and promotional spending was required to appease cautious consumers. By Kris Rosemann Simulated Best Ideas Newsletter portfolio idea Chipotle (CMG) reported 8.6% year-over-year revenue growth in the third quarter of 2018, results released October 25, driven by new store openings and a 4.4% increase in comparable restaurant sales. Average check moved higher from the year-ago period due in part to a 3.8% effective menu price increase but was partially offset by a 1.1% decline in comparable restaurant transactions. This weakness in traffic was … Read more