Papa John’s issued a business update that showed continued double-digit comp growth in June for the North American market. While comps slowed a bit versus the May trend (+24% in June vs. +34% in May), we are encouraged by the overall strong momentum.
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We are seeing an improvement over the last few weeks within restaurant and broader discretionary consumer trends. As expected, food retail, which benefits from shelter-in-place, is seeing the inverse trend - a slower growth rate than a month ago. In markets where there’s been a spike in infections, we’ve seen an increase in supermarkets sales growth and a slower recovery in restaurants. However, it appears that increasingly more consumers want to get out of their homes; and, those with secure jobs are eager to spend money.
Our latest checks suggest a continued pick-up in restaurants as states reopen, along with moderating, albeit healthy, growth in the food retail sector.
Our latest U.S. consumer survey, where we asked more than 1,000 respondents to characterize coronavirus’ impact on daily routines and spending, shows broad improvement relative to our April survey. While trends were generally positive, there are still categories that look like relative outperformers (restaurants) and laggards (cruise and air travel). Our ongoing China survey works suggests somewhat better attitudes in that market relative to the U.S., which could bode well for further improvements in consumer sentiment in the U.S. going forward.
Momentum across the system remains strong and the brand hasn’t seen any big change in performance within reopened states despite the increase in competition.
We’re continuing to see modest week-over-week improvements in the broader QSR segment (comps at most concepts appear to be flat give or take a few percent; brands with heavier breakfast mix are likely lagging). Dine-in demand appears modest—some operators are deferring reopening given elevated sanitation protocols—but drive-thru demand remains strong with some high-volume dayparts running into capacity constraints. Looking ahead, we think there’s some risk promotional activity accelerates as brands compete to solidify share gains, but franchisees will likely push back given the backdrop (deferred rent obligations coming due, tight labor market, etc.).
Our latest checks on the foodservice distribution segment show continued improvement in restaurant trends. State-by-state reopenings are delivering nice initial case growth, although growth rates appear to taper off a bit after a week or two. Net-net we’d expect the slow and gradual recovery to continue.
Our latest conversations across the restaurant sector suggest somewhat limited dine-in demand at reopened QSR concepts—approx. 5-10% of mix versus 30-35% previously—although drive-thru business remains healthy. The casual dining recovery continues to meaningfully trail QSR. Protein supply and labor availability (employees across the sector appear somewhat reluctant to return to work) remain focal points for operators.
Following recent earnings reports across restaurants and leisure, we are publishing updated estimates and price targets for each of the following: Hasbro (HAS), Lippert Components (LCII), Mattel (MAT), Papa John’s (PZZA), and Wendy’s (WEN).
Papa John’s posted significant comp acceleration in 2Q to-date versus 1Q, with North American systemwide SSS through the end of April up almost +27% YoY. Prior year compares remain relatively easy and expectations were likely elevated—PZZA stock is up almost +35% over the past month—but the comp momentum is encouraging.
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