Key Points:
- Q2 comp-sales and -traffic were solid for Taco Bell, Chipotle, and Cheesecake Factory, as were their outlooks, largely matching Advan observed figures and not matching a slowdown as suggested by others’ June data.
- The cyclospora scare was less severe to traffic than what’s been in the news. Moreover, the depth of the crisis is now in the rearview mirror.
Yum reported Taco Bell comp-sales of +7, in line with consensus and with Advan observedfigures of +7.1% / +1.6% / +5.4%. As to July, CFO Roy said, “Taco Bell's US same-store sales growth quarter-to-date through July 27 is negative -2%. Since the US food safety industry issue became front and center only two weeks ago, we saw maximum impact to sales over the weekend of July 18. It is early days, but in the subsequent week, sales declines have moderated materially, and we are seeing steady improvement in day-over-day sales trends.) This commentary is far more benign than what has been in the press. Advan observedtraffic through the 27th was -4.3%. One can find our prior stories on the scare here and here.
Chipotle reported comp-sales / -traffic / -check of +2.2% / +1.0% / +1.2%, which was above consensus (+1.3%) but in line with Advan observedfigures* of +2.0% / +0.5% / +1.7%. On the improved sales trend, CEO Scott Boatwright said, “The first pillar of our Recipe for Growth strategy is to protect and strengthen the core, and that starts with running great restaurants. For our guests, that means delicious food, generous portions, exceptional throughput and exceptional hospitality. That is what we are focused on every day, and it's why we're making targeted investments to strengthen the execution across our restaurants.” (i.e. there’s more to go.)
On the traffic cadence, Boatwright said, “On menu innovation, we kicked off the quarter with the return of Chipotle Honey Chicken, one of our most popular limited-time offerings that delivers a balance of smoky heat from Chipotle peppers and a touch of sweetness from pure honey.” The LTO started April 28th and the lift is evident in observed traffic. And CFO Adam Rymer, “In the second half of July, we did see a softening, call it about 200 basis points or so right around the issue that's affecting the industry around cyclospora.” And Boatwright, “We're not impacted -- or we are impacted from a sales perspective, but we're not involved in the cyclospora conversation today. The products that are caught up in that conversation, we don't use in our -- on our menu, and our lettuces are sourced here in California.” (That slowing is also evident in observed traffic.)
In the face of some reports that Cheesecake Factory sales had slowed in Q2 / June, the company put up a very strong increase for the quarter at +5.8% (consensus at +2.1%), with contributions from price (+3.0%), traffic (+2.7%) and mix (+0.1%). Traffic was stronger QoQ by +410bps. As shown in the chart, observed traffic* did slow moderately in May and early June (weather and gas prices), but late June and July took off. World Cup lift?
On its and the category’s momentum vs. limited service, CFO Matt Clark, “I think that the value equation in the consumer's mind has pivoted a little bit and the price points have compressed. So you see casual dining like we're doing making sure that you have a price point across all spectrums that's approachable for those guests that might have thought about a different type of occasion. And then those guests are realizing they get a full experience, right, and service in a sit-down restaurant versus potentially a drive-thru or effectively just picking it up. And so you look at the totality of that and what people want to do in their life and get those little indulgences, those little like mini vacations for an hour, that's clearly resonating across casual dining.”
In describing the business’ strong momentum and outperformance, management said, “One of the key drivers of this momentum has been the positive response to our recent menu additions, demonstrating the strength of our culinary innovation. Our new offerings highlight the breadth and relevance of our menu, helping to drive frequency, attract new guests, and reinforce value through innovation rather than discounting.” And, “We also increased our marketing activity, leveraging social media, influencer partnerships, targeted digital campaigns and key promotional moments to amplify awareness of our menu innovation and rewards offerings. This coordinated approach across marketing, operations and technology helps strengthen guest engagement and brand visibility.”
