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Many QSRs starting to show signs of weakness

Many QSRs starting to show signs of weakness

NEW YORK As the domestic unemployment rate continues to rise, hitting 8.9 percent in April, quick-service chains that have so far battled successfully against the recession may find their good fortunes are running out.

Analysts last week proffered that a combination of still-rising unemployment and a decrease in the number of consumers left to trade down from higher-priced restaurants and provide QSRs with incremental sales gains could lead to softness in the months ahead.

With the exception of McDonald’s, which on Friday posted a 6.1-percent increase in U.S. same-store sales for April, chains including Burger King, Wendy’s, Carl’s Jr. and Sonic have all reported slowed sales. Same-store sales for those chains were either modestly positive or dipped into negative territory.

“We attribute this sequential softening of QSR sales to rising unemployment and to a moderation in consumer trade-down, assuming that consumers inclined to trade down to QSR have probably already done so,” analyst Joe Buckley at Bank of America-Merrill Lynch said in a Friday research report.

Buckley noted that in addition to McDonald’s, other positive quick-service performers include Domino’s, whose domestic same-store sales in the first quarter returned to positive territory, and Hardee’s, the sister chain to Carl’s Jr. Both Hardee’s and Carl’s Jr. are owned by CKE Restaurants Inc.

Oak Brook, Ill.-based McDonald’s Corp. continued to cite its value pricing, Snack Wrap menu items and the new McCafe coffees as sales drivers. Globally, the No. 1 burger brand posted a same-store sales gain of 6.9 percent for April. In Europe, same-store sales rose 8.4 percent, and in the company’s Asia-Pacific, Middle East and Africa region, same-store sales rose 6.5 percent.

Conversely, Sonic said last week its same-store sales for March and April “deteriorated slightly” from earlier levels, which some analysts said indicated a decline of between 4 percent and 6.5 percent.

Sonic, operated or franchised by Oklahoma City-based Sonic Corp., has been struggling since late last year against slower top line trends. The drive-in chain looked to spur traffic with the introduction of a systemwide value menu, which has yet to garner traction.

“We suspect the weakening of comps reflects both incremental negative mix shift as the value menu cannibalizes regular-priced sales and worsening traffic trends,” analyst Sharon Zackfia of William Blair & Co. said in a note last week.

While the next few months could be difficult for certain quick-service chains, positive economic traction still favors the restaurant industry, analysts said. April’s unemployment report included the loss of hundreds of thousands of jobs, but it also reflected a slower pace of job cutting than in previous months.

Recent restaurant industry surveys also have shown a growing sense of optimism among operators.

Contact Sarah E. Lockyer at [email protected].

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