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Few winners in a tough quarter for restaurants

Blog: Average industry same-store sales fell in the second quarter as consumers remained fickle

This post is part of the On the Margin blog.

Consumers continued to keep restaurant spending to a relative minimum in the second quarter, at least based on same-store sales results at publicly traded companies.

The industry's average same-store sales fell 0.1 percent in the period, based on an NRN analysis of same-store sales in companies’ most recent earnings period. Not all companies have reported, so the numbers could change.

Median same-store sales fell 0.5 percent. On a two-year, stacked basis, same-store sales declined 0.3 percent.

With such weakness, there were more losers than winners. Of the 69 chains that have reported same-store sales, 37 reported declines.

Here’s a look at some of the winners and losers from the second quarter:

Loser: Unfettered growth. As we said Tuesday, the fast-casual segment performed worse than any other segment in the period, and that was true with or without Chipotle Mexican Grill Inc. and its 8.1-percent increase. That has many chains questioning their growth strategies. The fast-casual chains Noodles & Company and Pollo Tropical have closed locations, while Zoe’s Kitchen Inc. is slowing development, and Potbelly Corp. is performing a comprehensive strategic review. Rave Restaurant Group Inc.’s Pie Five chain, has yet to report, has closed locations amid steep same-store sales declines.

Winner: The Big Three. Who said that the Big Three burger chains -- McDonald’s, Wendy’s and Burger King -- couldn’t enjoy a relatively strong quarter at the same time? All three chains reported domestic same-store sales increases of at least 3 percent in the second quarter. They led a quick-service segment that was pretty strong in the period

Loser: Pollo Tropical. We can’t think of a more disappointing performance than the 7.7-percent decline at the Caribbean chicken chain. Pollo Tropical was once one of the industry's better performing concepts, but it has stumbled badly after a series of missteps. Now parent Fiesta Restaurant Group Inc. is working on a turnaround. Executives met with the founders of Pollo Tropical and sister chain Taco Cabana “to identify the principles that made each brand iconic.” 

Winner: Del Taco. On the other hand, perhaps no chain has been as surprising as Del Taco Restaurants Inc., whose 7.1-percent increase was behind only Domino’s Pizza Inc. (9.5 percent) and Chipotle. On a two-year, stacked basis, Del Taco’s same-store sales increased 10.4 percent in the second quarter. The chain has thrived by adding premium items to a menu previously loaded with cheap fare, and customers have responded.

Loser: Applebee’s. Same-store sales at the venerable bar-and-grill chain declined 7 percent in the company’s second quarter. Same-store sales fell 10.9 percent on a two-year, stacked basis. Only Chipotle’s 15.5-percent, two-year decline was worse. Applebee’s is struggling as consumers shift spending away from bar-and-grill chains. But the chain also has some self-inflicted wounds, notably marketing problems and leadership changes that have badly hurt sales.

Winner: Casual dining. It’s difficult to say a segment averaging a 0.6-percent same-store sales decline could be considered a real winner, but the long-struggling casual-dining segment performed better than expected during the period. Chains like Olive Garden (4.4 percent), Texas Roadhouse (4 percent) and Ruth’s Chris Hospitality Group (2.9 percent) fared strongly in the period, proving that consumers will wait for their food. 

Loser: Papa Murphy’s. Same-store sales keep falling for Papa Murphy’s Holdings Inc., after a 4.3-percent decline in the second quarter. Same-store sales have dropped 8.3 percent on a two-year, stacked basis. That’s tough for Papa Murphy’s, which has a lot of smaller franchisees, and unit volumes averaging less than $600,000 per restaurant. It needs the sales.

Winner: Domino’s. We wouldn’t leave off the strongest performer of recent vintage. Domino’s same-store sales results bested everybody in the period, something it’s been doing for much of the past two years. The Ann Arbor, Mich.-based chain will slow down some time, but for now Domino's is enjoying the strongest consistent performance of any big, publicly traded restaurant company in the country.

Loser: Restaurant Brands International Inc. Sure, Burger King is doing well, but the company is facing challenges with its Tim Hortons brand, where same-store sales fell 0.8 percent, and which is facing pressure from Canadian franchisees and Popeyes Louisiana Kitchen. The chicken chain, which RBI bought earlier this year, is suddenly struggling, with same-store sales down 3.3 percent in the second quarter. 

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

TAGS: Finance
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