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Restaurants: Pondering 2025
by John Gordon, Principal and Founder, Pacific Management Consulting Group
Coming into 2025, there were positive restaurant indications: Darden recovered in its December release, getting to SSS stability at Olive Garden and very nice unit and SSS growth at Longhorn, putting in the top three casual dining powerhouses like Texas Roadhouse (TXRH) and Chili’s (EAT) current surge conditions underway. Then, the early January Master Card Spending Pulse indicated that its polled restaurant sales were up 6.3% for the time period 1 November 2024 to December 24, 2024. That would imply positive traffic of a couple of points.
As expected, McDonald’s announced its 2025 McValue menu, which extends the $5 four item meal deal and adds a buy one item full price, get another for $1, This platform is more developed than the prior effort, and is featuring John Cenna, the former WWF wrestler, to serve as value ambassador. The creative is better is something more catchable than the pure price number focus from last Summer. We also wonder if the buy one, get another addition might be check accretive. We should note two other bands of discounting are underway: local deals (from the coop) and then in app exclusives deals. This effort of course will negatively affect the rest of the “QSR Burger” segment due to McDonald’s tremendous marketing fund. One question is whether consumers will opt for the basic $5 offer and then additionally add the Buy One, get another for $1.
So, we’ll see. In January, two waves of snow and cold weather has hit the East and Midwest, with cold weather in the South. And of course, the LA fires will have a partial effect on the Los Angeles market. I’m not looking for good numbers.
ICR Meeting Notes: “cautiously optimistic”
So, it was great as usual to attend the ICR Meeting last week. It is a must attend. So, the meeting was kicked off by three positive updates on sales outlook : nothing big but welcome, nonetheless. The companies generally presented well, with no mishaps. They stayed close to their scripts. Presenters were mostly company operated brands, the large global franchisors, except Papa John’s, did not attend.
I heard three brands that openly criticized prior CEOs, or ownership. The Qdoba CEO noted that former owner Jack in the Box and PE firms did Qdoba no favors, The Papa John’s CEO widely criticized the former CEO, Rob Lynch for poor marketing fund decisions, and noted Lynch’s plans would be undone. And the CEO controversy at Dave and Buster’s (PLAY) continued with current interim CEO Kevin Sheehan saying that the company ignored day to day business during the prior CEO, Chris Morris tenure.
Because of many problems, PLAY stock fell to a 52 week low last week. Interestingly, three covering firms maintained their buy or outperform rankings. PLAY still has plenty of liquidity, $537 million on its revolver. But clearly, this company goes on my 2025 Adverse Conditions watch list.
We will have a brand new IPO to watch at the end of January—Twin Hospitality Brands. Hope for the very best!
Looking Ahead:
On Tuesday, January 21, the restaurant stocks roared ahead. The basic underlying investor hope for restaurants momentum is there no doubt. But once we get into Q4 earnings and 25 FY guidance, we will see if the hot 8-10 brands, that have been doing very well. can continue to standout, despite pressures of the Street and have more standout brands. . Fundamentally, I hope to see all brands can expand and enhance their aspirational guest mix. That can be more difficult for 50% of the industry that is in deep discounting mode. Even highly price sensitive guests desire good product and service. That is one of our main issues, how to do both.
John A. Gordon is a long time restaurant industry analyst, with 40 plus years in operations, financial planning and analysis, and now consulting on same via his founded firm, Pacific Management Consulting Group. Call or text anytime with a difficult problem ! 619 379-5561, mobile/text, jgordon@pacificmanagementconsultinggroup.com.