What is in this article?:
- Analysts: Conditions favor fast-casual chains in 2Q
- Panera, Chipotle among analyst favorites
- Over-inflated worries about costs
David Tarantino of Robert W. Baird & Co. projects demand for restaurants to be similar in 2013 to what it was in 2012.
Panera, Chipotle among analyst favorites
Analysts from Jefferies Equity Research, Sterne Agee and Barclays Capital largely agreed with Tarantino’s assessment of fair to moderately improving demand for restaurants in the second quarter, which likely would favor fast-casual brands and certain chains pitched toward more affluent customers.
Jeffrey Bernstein of Barclays noted that second-quarter sales for restaurants he covers generally were better than those in the more volatile first quarter, though performance at most brands decelerated in June compared with stronger sales in April and May.
“Importantly,” he wrote, “while underlying macro data support modest improvement in consumer spending — for example, employment, sentiment and housing — we expect commentary to be cautious and valuations to ease through earnings, not unlike the broader market.”
Andy Barish of Jefferies wrote that “top-line uncertainty makes us cautious heading into the second quarter,” especially since many chains have indicated sales are more likely to pick up in the second half of the year. With all segments currently pitched in a “haves-and-have-nots market share battle, upside opportunity is relatively limited at current valuations, and we would prefer to stick with the ‘haves,’” he added.
As such, Jefferies is more upbeat about coffee and upscale chains as well, he wrote. The company is predicting’ momentum, seen in last quarter’s 7-percent increase in domestic same-store sales, continued into its fiscal third quarter, Barish noted.
He similarly projected Dunkin’ Donuts’ same-store sales strength from the first quarter, which rose 1.7 percent despite inclement weather, carried over to the second quarter. “The company continues to drive check and margin with its innovative breakfast sandwiches, and we see incremental traffic growth via more menu and daypart innovation, marketing, remodels and the upcoming DD Perks upgrade,” Barish wrote.
He predictsBread’s likely success in the second quarter due to a national cable-TV launch and 30-percent increase in media spending, in addition to new-unit growth in more urban and drive-thru locations.
“Margins look solid,” he added, as Panera’s food costs are locked for 2013 at inflation of 2 percent to 3 percent, which could be covered with modest price increases. “This profile compares favorably to its peers that generally have only a modest ability to contract input needs (like) and will likely see inflation that is double Panera’s.”
But “Chipotle is one of our top picks,” Lynne Collier of Sterne Agee wrote, “as the company boasts one of the best operating models in the industry, leading unit economics, quality management, and near-term top-line catalysts like catering and increased marketing.”
Collier noted that Chipotle would benefit in the second quarter from a calendar shift involving Easter that negatively affected its first-quarter results, and she added that two of Chipotle’s larger markets, California and Texas, outperformed the national restaurant sales average through May, according to Knapp-Track.
Collier also viewedas a top pick in her second-quarter preview.
“The company is currently our favorite name in the casual-dining space,” she wrote. “Its model does not rely on aggressive promotional activity that is now more prevalent among causal-dining peers. In addition, we continue to view international expansion as an attractive opportunity, as currently international units (three opened to date) have shown very strong performance.”