RESTAURANT Q4’19 – SALES, TRAFFIC, MARGINS @ TXRH, CAKE, RUTH, BJRI, BLMN –       A LOT TO LEARN !!

In the last few days, five prominent restaurant companies, with company operated locations, have reported fourth quarter results. These data points give us a reasonably accurate view into current trends, and allows us a best guess as to what 2020 might look like. While franchising companies such as Wingstop and Domino’s have also reported, with excellent results it so happens, precise store level margins are not reported and we are not commenting here on those results. We have also not included Chipotle, which has become very much of a “special situation”, still recovering from the problems of several years ago, at the same time establishing themselves as a leader with off-premise sales, and it’s the four wall economics that primarily concerns us here.

The table just below shows the five companies listed above, with their Q4 results at the store level. We will fill in the other blanks later, with full updated writeups on these companies, but a quick look at four wall economics can tell us a lot quickly.

We’ve been saying for some time that a couple of points of comp sales is not enough to overcome higher store level expenses, wage inflation most notably but also higher occupancy and other store expenses. That conclusion is pretty clearly demonstrated by these results.

Only Texas Roadhouse (TXRH) improved same store sales materially (+4.4%), and that was accompanied by the best traffic trend among the five companies (+1.5%).  That allowed TXRH to leverage the sales trend into a 117 bps increase in their store level margin. The other four companies , even with slightly better comp sales, suffered material deterioration of store level EBITDA margin.  Labor Expense was higher by varying degrees, most notably at BJ’s, with Texas Roadhouse, again, being the only company to hold the line in this regard.  Cost of Goods was not much changed across the board, except at RUTH with their heavy dependence on beef costs.

We have indicated also, at the bottom of the table, the indication as far as Q1’20 sales to date, or guidance for 2020. Once again, Texas Roadhouse leads the pack with a 6.4% comp sales increase in Q1 to date. BJ’s gave us a 1.7% number for Q1 to date. The others provided guidance for 2020 as a whole, very much in line with the modest recent increases. It is worth noting that the weather this winter so far has been fairly good on a comparative basis, and each of us can make our own judgements as to what effect this is having on Q1  results to date and management’s guidance for 2020.

In summary, there is no tangible reason to expect a material change in operating trends at company operated restaurant chains. Outliers can exist at special situations, but the overriding factors that have challenged the industry are still in place.

Roger Lipton