Sales trends, reopens & UBS Evidence Lab data support positive narrative
Industry data points and conversations with management teams & franchisees highlight continued optimism and a positive sector recovery narrative. Sequential improvement in weekly sales trends, positive dining room reopen takeaways, and more upcoming state/restaurant reopening news should support further sector upside. UBS Evidence Lab survey data conducted from 5/18-5/20 indicates encouraging restaurant order frequency trends, with respondent intending to increase orders, deliveries, and visits to restaurant/bars. We highlight: 23% of respondents that intend to increase order frequency next week (up from 18% end of April), and 18% of respondents intend to increase visits to restaurants/bars next week (~doubling since the beginning of April). But despite the positive data points, we believe visibility remains limited into the trajectory of the recovery from here given benefits from the stimulus, diminished competition, and a general lack of other spending options; all of which could become less beneficial & limit continued recovery gains over the coming months. Key points of focus in the coming weeks include casual dining reopen performance & capacity, quick service restaurants (QSR) gains if competition begins to reopen, and impacts from macro & various other spending pressures & alternatives.
Investor optimism continues, but risk/reward less compelling currently
Discussions with investors highlight cautiously optimistic sector recovery expectations, with more positive developments/news likely over the near-term. We believe investors are modeling continued improvement from current levels and mostly above sell-side Consensus estimates; QSR segment comps are generally expected to be positive by 3Q, while casual dining trends are likely to be limited by capacity constraints (down ~20-25% comps expected as a plateau for many CDs in coming quarters.
Franchisees highlight continued sales recovery & cautiously optimistic outlook
Conversations with franchisees suggest ongoing optimism, with sales trends continuing to improve sequentially across QSR segments. Cautious optimism is still the general sentiment looking ahead over the next several months, with concern around the sustainability of recent recovery momentum. Franchisees continue to highlight: good performance from family bundle value offerings; menu simplification benefits (operations, labor); and just limited supply concerns, with out of stock issues generally very temporary (few hours, half day, etc.). On value, franchisees appear mixed, with several expecting a notable value push, while others appear more resistant to a big value emphasis, given: i) strength of average ticket currently, ii) stimulus & other spending benefits, and iii) unwillingness given balance sheet & P&L pressures