Credit Card Delinquency, S&P Top Movers, Franchisee News, Domino's, Netflix & More
Featured Analyses from Newsletter
There has been a lot of press about how ramping credit card delinquencies demonstrates a crack in the foundation of the consumer economy. However, a look at the actual historical data shows a different story…
Hispanics accounted for 71% of the total 2023 U.S. population growth, mostly due to births and additional immigration. The non-Hispanic population grew by +0.2% y/y as net immigration more than offset 217,000 more deaths than births. The only race in the U.S. to decline y/y were non-Hispanic whites, down -0.2% y/y, according to the U.S. Census.
The FTC recently issued a Policy Statement designed to ensure that franchisees can report potential violations without fear of retaliation or legal consequences from franchisors. In 2022, after hearing that franchisees may have had difficulty filing reports using the Commission’s reportfraud.ftc.gov portal, the Commission streamlined the reporting process. While the number of reports has since increased, the FTC was concerned that some franchisees continued to feel chilled, or even contractually prohibited, from reporting to the FTC.
Premium Analyses
Domino’s Rewards program growth during the quarter was driven by both new users (particularly carryout customers) and a higher frequency from light users enticed by attractive deals. Sales cadence was steady throughout the quarter and 2H24 comps are expected to exceed +3%. In any case, a DPZ share decline and lower EV/EBITDA valuation multiple reflects investor disappointment in the chain’s growth prospects.?
Over the past 15 years, Darden has successfully integrated 6 brand acquisitions (Ruth’s Chris most recently). Current plans to add Chuy’s Tex-Mex to its portfolio reflect Darden’s belief that this represents an easy “in” to capitalize on the growing popularity of the Mexican category among younger consumers whom they plan to keep for life. Chuy’s strong unit-level economics provide an ample runway for new restaurant growth in existing markets.
Omnicom Group’s management reported on 10/23 that global e-commerce sales are set to increase by +50% ($7 trillion by 2025) and that its Flywheel Digital acquisition (providing 4,500 brands with real-time online insights) significantly improves its positioning in the rapidly expanding digital commerce and retail media sectors (2 of the fastest-growing parts of the industry). Management noted that while its advertising clients are not pessimistic, they are utilizing conservative forecasts because their expectations at the beginning of 2024 for 4 interest rate cuts have been reduced to just 1 by August.
Netflix intends to phase out its basic ad-free $11.99/month plan to put more focus on its $6.99 ad-supported plan which grew +34% y/y during the quarter. Netflix seeks to put Humpty Dumpty back together by building a better, global legacy TV model.
Equifax’s +9% y/y revenue growth during the quarter was at the top end of its guidance, helped by the increasing use of financial data background checks that are becoming more commonplace in the burgeoning surveillance state.
United Airlines reported that industry capacity growth exceeded solid demand during the quarter, pressuring yields. As competitors are engaging in unprofitable flying in many domestic markets, management expects that domestic industry 4Q capacity growth will moderate by roughly 5% vs. 2Q, providing a constructive backdrop heading into 2025. In any case, United flew its most passengers ever during the quarter (44MM+).
Who says you must be a genius to pick stocks? A recent look at the top performers in the S&P 500 reveals a simple algorithm in which the increasing prospect of an interest rate cut is propelling banks, home builders & auto manufacturers who have all been patiently waiting for a break. It’s a good thing that there is no correlation between elections & interest rate cuts…
Papa Johns’ brand positioning emphasizes: long standing “Better Ingredients. Better Pizza. Papa Johns” messaging; menu innovation; digital strength; and effective marketing. While Papa Johns is executing around a solid strategy, its upscale positioning may have to wait for an economic recovery before it regains traction.
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