Restaurants: Negative surprise coming?
Consumer Discretionary
John Zolidis has published a bearish framework on the Restaurant industry and believes the Street is misunderstanding implications of commodity price declines which will disadvantage the industry vs. food-at-home as grocery stores pass on lower prices. Meanwhile, he sees no argument for a stronger consumer or better traffic this year. John predicts negative same-store sales in 2H23 (which is not reflected in analyst expectations). He is most bearish on value destroyer Shake Shack, investor favourite Chipotle, and overvalued growth name Dutch Bros.
Edition: 153
- 03 February, 2023
Consumer Discretionary
Shares continue to trade on the company’s LT unit growth potential even as the financial profile of the business weakens - 2Q22 guide for profit per average unit implies 30%+ below pre-covid levels. ROIC is in the low single digits and below WACC. Rather than invest copious amounts in non-productive G&A, John Zolidis argues the company should slow unit growth and reinvest in its stores. The current consumer proposition (menu, price/value relationship) just isn't that compelling relative to alternatives. The Street thinks SHAK will inflect to a profit in 2023. John remains unconvinced.
Edition: 135
- 13 May, 2022
Shake Shack (SHAK US) US
Consumer Discretionary
Over 50% downside as pre-Covid problems resurface - SHAK's strategy has been to try to outrun AUV declines and profit deterioration with very aggressive unit growth. However, eventually, the company will hit an inflection point where this is not possible - either the unit growth will be too difficult to execute or problems in the core business will become too big to paste-over. After Q1 results Quo Vadis believe we are close to this inflection point.
Edition: 110
- 14 May, 2021