What the Monitor Stock Index Is Telling Us
The Restaurant Finance Monitor Stock Index (RSM) has returned 2.14% as of March 14, 2018, behind the S&P 500, which is up 3.16%. Recent earnings reports and same store sales trends provide insights into many of the challenges in the U.S. economy including margin pressure from rising wages and price competition.
However, there is also good deal of optimism in the segment as consumers are feeling more confident and there is clear global demand for American food and the franchise business model. Ultimately, the index winners must deliver on the customer experience as well as benefit from any economic or social trends.
RSM Index highlights begins with McDonald’s (MCD) showing signs of competitive indigestion. Its stock, one of the consistent Top 10 largest holdings in the index, is down 8.06% YTD. That comes after a 23.82% positive performance in 2017. Ironically, weakness in McDonalds stock could be telegraphing a peak in same store sales gains and could be an example of why we see the industry as a window into the economy.
There was little consistency in the other top index holdings including Yum China (YUMC), Starbucks (SBUX), YUM Brands (YUM) and Restaurant Brands International (QSR). The one thing clear is that global expansion remains critical to stock performance. To that point, it is worth mentioning that optimism for global growth continues at Domino’s (DPZ) as the brand continues to dominate the pizza category. Dine Brands Global (DIN), which was recently added to the index, has risen 37%. Undoubtedly, this was due to improved results and perhaps, the name change, which added global to its name.
Casual dining brands showed universal strength operationally across the board. According to a recent research report from Morgan Stanley restaurant analyst John Glass, “the top-line expectations beat existed for Texas Roadhouse (TXRH), Bloomin Brands (BLMN) and Red Robin Gourmet Burgers (RRGB).” The magnitude of the breadth of the pick-up in casual dining suggests a consumer that is feeling more confident. However, as evidenced by the spread between the winners and loser in the index, this doesn’t mean execution is easy.
Glass points to delivery becoming a more meaningful part of the restaurant business in both casual dining and fast food. He cited MCD and suggested that 60 basis points of its 4th quarter comp sales gain came from delivery sales. Other brands cited by Glass include Wendy’s (WEN), which he says has delivery available in 20% of its restaurants and Jack in the Box (JACK) with 60% of stores handling delivery. Casual dining's embrace of delivery has been more mixed, according to Glass, with Darden Restaurants (DRI) in test mode and still sounding skeptical; Bloomin Brands (BLMN) doing its own delivery; Cheesecake Factory (CAKE) is using third-party in 90% of locations; BJ’s (BJRI) delivery is available in 75% of the stores; and Red Robin (RRGB) with about half of restaurants offering delivery.
About the Index
The Restaurant Finance Monitor Stock Market Index follows a strict rules based methodology that weights QSR and Fast Casual at 70% with full-service making up the balance. No one brand represents more than 5% of the index. The index holds over 29 restaurant company names that represent over 35 different brands. Unique to the index is the fact that it rebalances quarterly to sideline six weaker players and replaces them with companies who are winning the game. As a window into the economy, the index tells an unbiased story about the performance of the restaurant industry.
The Restaurant Finance Monitor Stock Market Index was founded by Dan Weiskopf through Access ETF Solutions LLC as a result of his interest and research in the restaurant and Exchange Traded Funds (ETF) industries. For more information about the index, contact Dan Weiskopf at DanW@investment-planners.com or on Linkedin.