Several fast-food chains may have to wait until more young men find jobs before seeing same-store sales rise, according to a restaurant analyst.
Jefferies & Co. restaurant securities analyst Jeff Farmer said in a note to investors this week that an analysis of ten years of quarterly same-store sales trends and unemployment data shows that same-store sales for three chains – Jack in the Box, Sonic and Burger King – are the most highly correlated with the unemployment rate. The chain sales dip as unemployment rises, he said.
Farmer also noted that same-store sales at one company – Domino’s Pizza Inc. – actually appear to improve as the unemployment rate rises. See his research here:
Farmer noted all three restaurant chains that were hit hardest by mounting job losses cater to a young, male demographic, which had an unemployment rate of 18.2 percent in May.
The U.S. Department of Labor announced a May unemployment rate of 9.7 percent last week, with total nonfarm payroll employment up by 431,000. However, much of that increase stemmed from the addition of several hundred thousand temporary U.S. Census workers. Farmer noted that when controlling for those hires, job growth fell 41,000 during the month.
The analyst also said that job losses in 2008 and 2009 were concentrated in a number of sectors, including construction and retail trade. Those two sectors, he said, employ a large number of 18-24 year-old males and Hispanics.
“With both sectors seeing job losses in May 2010, the waiting game continues,” Farmer said in the note. “We believe the Jack in the Box, Sonic and Burger King concepts all need to see sustained job growth from the construction and retail trade sectors in order to see the return of healthy same-store sales growth.”
All three chains have seen same-store sales drop as the recession continues to impact spending and employment trends.
Jack in the Box Inc., for example, reported a same-store sales decline of 8.6 percent for the quarter ended April 11, while Sonic Corp. said its systemwide same-store sales fell 13.2 percent for the three months ended Feb. 28.
Jack in the Box spokesperson Brian Luscomb said the company agreed with Farmer’s thesis, saying the company does not expect “significant improvement in underlying fundamentals” until the unemployment rate improves.
“Forty-four percent of our restaurants are located in the ten states with the highest unemployment,” he noted.
Burger King Corp. also has struggled to keep same-store sales growing. For the three months ended March 31, the company reported a worldwide same-store sales decline of 3.7 percent, with same-store sales in the U.S. dropping 6.1 percent.
Farmer said 26 percent of Burger King’s restaurants are located in the states hardest hit by unemployment.
McDonald’s Corp. has been one of the bright spots in the quick-service space. The chain reported Tuesday that its global same-store sales rose 4.8 percent in May, with same-store sales up 3.4 percent in the U.S.
Farmer said McDonald’s U.S. same-store sales have the lowest correlation with the unemployment rate, which is “the result of the concept’s very broad customer base across age, income and regional demographics.”
Burger King and Sonic did not return calls seeking comment.
Lauren Shepherd is a contributor to NRN. Contact editor Sarah Lockyer at [email protected].
