What is in this article?:
- Analysts bullish on Taco Bellâ€™s sales, unit growth
- Mobile set to roll soon
Breakfast, mobile ordering expected to drive gains, industry watchers say
Despite Taco Bell’s 1-percent same-store sales decrease in the first quarter, securities analysts left the brand’s Analyst Day event Thursday encouraged by its long-term prospects for sales and unit growth.
Industry watchers invited to Taco Bell’s Irvine, Calif., headquarters left impressed by the potential for the chain’s new breakfast platform to be highly incremental to traffic and sales, enabling the kind of average unit volume growth that could accelerate Taco Bell’s unit development to about 3-percent expansion per year in pursuit of 8,000 domestic locations.
In several research notes published just after the event, securities analyst noted several brand highlights for Taco Bell:
Jumping out of the 1Q hole
Taco Bell officials reportedly attributed much of the chain’s 1-percent same-store sales decline and resulting 16-percent drop in segment profit on severe winter weather that negatively affected sales and traffic at quick-service restaurants around the country.
In addition to the weather impact, commodity inflation also pressured profitability, but Bernstein Research analyst Sara Senatore noted that Taco Bell has a better line of sight on beef and dairy prices, which drove the food cost pressure.
“While commodities should remain elevated in the second quarter before moderating later in the year, we expect a combination of cost savings, modest price increases, as well as product and promotional strategy to offset,” she wrote.
Like other analysts, Senatore was bullish on Taco Bell’s two planned near-term sales drivers: breakfast and mobile ordering.
Breaking into breakfast
David Tarantino of Robert W. Baird & Co. wrote that Taco Bell management noted its launch of breakfast in late March was still off to a strong start, as the platform — particularly the A.M. Crunchwrap — generated the highest awareness and trial of any launch in Taco Bell’s history.
“Without quantifying the specific sales impact, management noted being comfortable that breakfast would deliver the mid-single-digit lift in sales needed to break even on a run rate basis during the first year,” he wrote.
Andy Barish of Jefferies Equity Research added that Taco Bell was capturing about 22 percent of the quick-service morning-meal market in this initial phase of the breakfast launch.
Tarantino also noted that Taco Bell’s next big product launch some time in the second half of the year would be called the Quesarito, which brand leaders described as the best-selling product in a test market since the test of the Doritos Locos Tacos.