Weekly Notes On Restaurant Industry: McDonald’s, Burger King & Chipotle Mexican Grill

Restaurant industry has been struggling with rising commodity prices and declining customer traffic over the last six  months. However, the situation seems to be improving, as the latest restaurant sales data suggests that the same-store sales growth is gaining momentum. According to a report by Wall Street analyst, comparable store sales of restaurants chains in the U.S. in August have improved compared to that in July. According to the data, August system-wide same-store sales rose by 3.5%-4% on average, which is 2.5 percentage points more than same-store sales growth in July. In terms of segments, same-store sales for fast casual segment rose by nearly 4%-4.5%, an improvement of 1 percentage point over July. On the other hand, same-store sales for Quick Service Restaurant (QSR) increased by 6.5%-7% in August, in comparison to 5.5% in July. ^[1]

Here’s a quick round up of the restaurant companies covered by Trefis.

See Our Complete Analysis for These Companies Here

McDonald’s

McDonald’s Corporation (NYSE:MCD) has been witnessing sluggish growth for the past 12 months, primarily due to tough competition in the restaurant industry from the fast casual segment and declining customer traffic. (see McDonald’s Q2 Earnings: Decline In Customer Traffic & Rising Commodity Costs Drag Sales Growth) To worsen the situation, McDonald’s Asia segment had to face the China food scare scandal, which dented its revenue growth in China and Japan. (see McDonald’s Faces Declining Sales In Asia After China Food Scandal) As a result, the company’s same-store sales in August declined by 3.7%, its worst monthly decline in a decade. Its same-store sales in the U.S. fell by 2.8% in August, lower than analysts’ expectations. ^[2]

McDonald’s stock traded between the range $93-$94 last week. Our price estimate for the company’s stock is $103 (market cap of $102 billion) which is 10% above the current market price. For 2014, we expect McDonald’s to report net revenue of around $30 billion and non-GAAP diluted EPS of $5.97. The market consensus for EPS is $5.36. (Reuters)

See Our Complete Analysis For McDonald’s Corporation

Burger King

On August 26, Burger King (NYSE: BKW) and Tim Hortons (NYSE: THI) entered into an agreement under which the two recognized companies joined hands to create the World’s third largest quick service restaurant company. ^[3] Burger King has been struggling in North America for the past few quarters, but for the last two months combined, the company reported 3.7% growth in the same-store sales in North America. ^[4] The merger with Tim Hortons might provide a huge platform to Burger King to expand its breakfast menu in Canada and further improve its same-store sales in the coming quarters.

Burger King’s stock traded around $31 last week. Our price estimate for the company’s stock is $28 (market cap of $10 billion) which is 13% below the current market price. For 2014, we expect Burger King to report net revenue of around $1.1 billion and non-GAAP diluted EPS of $0.97. The market consensus for EPS is $0.98. (Reuters)

See full analysis for Burger King

Chipotle Mexican Grill

The leader in fast casual segment, Chipotle Mexican Grill has been posting impressive figures for the last three quarters, with increase in average check and rising customer count. As a result, Chipotle’s revenue for the second quarter rose to $1.05 billion, up 28.6% year-over-year, primarily driven by an increase of 17.3% in the comparable restaurant sales. ^[5] According to Morgan Stanley research report, Chipotle’s stores have witnessed more than 6% increase in customer usage, highest in the industry, over the last eight years. ^[6]

Chipotle’s stock traded between the range $650- $670 last week with a low of $643 on September 17. Our price estimate for the company’s stock is $628 (market cap of $19.5 billion) which is 5% below the current market price. For 2014, we expect Chipotle to report net revenue of around $3.9 billion and non-GAAP diluted EPS of $$11.6.

See Our Complete Analysis For Chipotle Mexican Grill

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More Trefis Research

1. Restaurant finance watch: Positive August sales bode well for industry [↩]
2. McDonald’s same store sales fall 3.7% in August [↩]
3. World’s third largest quick service restaurant company launched with two iconic and independent brands [↩]
4. Burger King: North America same-store sales rise 3.7% [↩]
5. Chipotle Mexican Grill: earnings call transcript, Q2 2014 [↩]
6. This chart tells the whole story of how restaurant industry has changed over the past decade [↩]