Fewer respondents are planning to decrease order frequency from restaurants, with results improving 13 percentage points since 21 March
Trends may have bottomed, but challenges ahead; Quality to remain resilient
Weekly industry developments and updates highlight sector challenges, but also resiliency for the better positioned brands. We view government stimulus, franchisor support, and liquidity measures, as setting up quality brands & businesses models to survive & emerge well positioned. Our franchisee contacts remain generally encouraged by near-term support and a stabilization (or better) in sales, but remain cautious depending on the duration of depressed results. Investors are less optimistic about sector upside from here, and appear most focused on franchised quick service restaurants (QSRs) with slightly higher perceived risk, but greater return potential. Focus for earnings is on recent sales trends, liquidity discussions, and any franchisee commentary. UBS Evidence Lab survey data conducted from 4/9-4/13 indicates possible stabilization in declines in restaurant orders, but doesn't yet support optimism increases: 19% of respondents planned to increase order frequency over the next week, relative to 23% from the 3/26-3/28 survey.
Sentiment mixed as valuation disconnects close; Focus on returns & quality
Conversations with investors this past week highlight less upside enthusiasm, with shares up meaningfully from lows and the valuation disconnect largely closed. Investors continue to prefer restaurants further out the perceived risk curve in search of returns, but still seek quality names that should exhibit above average resiliency.
Franchisees suggest trends modestly improving; Stimulus coverage shortage?
Conversations with franchisees this past week suggest sales trends could be improving modestly off of lows, which had been: QSR down ~20-35%, fast casual down ~40-70%, and casual dining same store sales down ~70-85%. We heard indications of particular improvement at several brands with drive-thru in recent days, likely a result of a boost from consumer stimulus checks, although we anticipate the lift will be temporary. Interestingly, franchisee conversations suggest potentially large numbers of franchisees have not received paycheck protection program (PPP) money, a possibly significant development, with a second round of the program likely needed. For those that qualified, our sense is most QSR franchisees will be made at least whole, and potentially come out ahead over the next ~two months. Additionally, it appears many large franchisees expect PPP money beyond the $10MM cap given a multiple entity structure.