Restaurants earnings season is upon us once again. Here are some highlights from the past week of financial reports.
Fat Brands sees M&A opportunities
The owner of Fatburger and Twin Peaks could be back in the mergers and acquisitions market soon. Fat Brands has been generally quiet when it comes to acquisitions over the past couple of years as it has worked to cut back on debt.
But executives believe that sellers are lowering their asking prices for chains. “There’s an opportunity to make acquisitions similar to the pricing around Smokey Bones,” which was acquired in the “three-to-four times cash flow range,” Fat Brands Chairman Andy Wiederhorn told analysts this week, according to a transcript on the financial services site AlphaSense.
That is opposed to sellers holding out for seven to 10 times cash flow. “It’s just hard in this environment to justify that,” Wiederhorn said. He believes that lowered interest rates and getting the election behind us could help spur more deals.
BJ’s looks to break through the noise on value
It’s not that BJ’s Restaurants doesn’t offer customers a good value. It’s that it has become more challenging to let them know about it.
As the market for restaurant meal deals and discounts has become crowded, brands have to be louder about what they offer, said Greg Levine, CEO of the 200-unit casual-dining chain.
To make its voice heard, BJ’s plans to spend more on marketing this quarter.
Some of that advertising will be focused on the chain’s signature Pizookie dessert, which it wants to make a household name. Other messaging will focus on price points and specials.
“In today's environment, you're seeing that price point be very, very important,” Levin said. “So instead of it being more of a branding type commercial, which we would use the Pizookie, per se, it would be a little bit more price point specific around Daily Brewhouse Specials or some of our everyday value menu items that we have.”
BJ’s is hoping the renewed marketing push will get more customers in the door. Its same-store sales fell 0.6% year over year in the period.
Olo wins back a former customer
After leaving Olo to build its own online ordering system, &pizza has returned to the fold, Olo said this week.
Though Olo has lost some high-profile customers lately, including Subway and Wingstop, it is more typical for restaurants with homegrown tech to switch to Olo, CEO Noah Glass told analysts.
In &pizza’s case, the chain is shifting into growth mode and needed a more dependable tech stack, Glass said.
It was part of a strong quarter for Olo. Its closely watched average revenue per unit (ARPU) also increased 19%, driven in part by momentum in its catering software.
El Pollo Loco caught in the middle of consumer trade down
El Pollo Loco had some success in the second quarter by focusing on “filling up on good food for a good price,” said CEO Liz Williams on Thursday.
During the quarter, the Los Angeles-based grilled chicken chain launched new burritos with guacamole included for $9.99 (or $8.99 for rewards members) that helped improve margins. The chain also brought back more premium priced double-chopped salads with chicken or shrimp as limited-time offers, which helped drive traffic, despite pricing in the $11 to $12 range.
But Williams said the chain is somewhat caught in the middle between higher-priced fast casual and the value wars of quick-service competitors.
El Pollo Loco has seen trade down from fast-casual brands offering similar salads in the $15 to $16 range, for example, but at the same time El Pollo Loco is also losing some traffic to QSR discounts at the lower end.
“We do get the trade down where people find going to casual dining is too expensive … or the fast-casual salad is too expensive,” she said. But “as we’ve got the guys out there running the crazy couple of dollars for this or that, the consumer that’s really under pressure, sadly, is going to trade down there. I think we’re seeing all of that right now.”
Second quarter same-store sales were up 4.5%. At the 495-unit chain’s 171 company units, same-store sales were up 3.2%, which was attributed to an 8.8% increase in average check size from a 7.8% increase in menu prices. But that was offset by a 5.2% decrease in transactions.
Williams said the chain has decided to slow down the pace of rolling out kiosks to enable tech enhancements, like accepting gift cards and discounts, and better customer service. The rollout is expected to reach all company units before the end of the year.
Net income was $7.6 million, compared with $7.1 million a year ago. Total revenues grew 0.6% to $122.2 million, up from $121.5 million in the second quarter last year. Restaurant-level margins increased 170 basis points to 18.6%.
The company refranchised 19 restaurants earlier this year, which resulted in a $5.4 million drop in revenues from company-operated stores to $102.3 million.
Smash burgers are a smash hit at Bad Daddy’s
Bad Daddy’s Burger Bar may have found its next big menu item. Toward the end of the second quarter, the 41-unit sit-down burger chain added quarter-pound smash burgers and saw them fly off the shelves.
“We had to dip into reserve stock and quickly recover as purchase velocity was more than double our expectation,” CEO Ryan Zink said in a press release.
Though the limited-time offer is scheduled to end after Labor Day, Zink said the burger will likely end up on the permanent menu eventually.
The smash burgers were a highlight in an otherwise solid quarter for the burger chain as same-store sales rose 1.2% at company-owned stores.
Its quick-service sister concept, Good Times Burgers & Frozen Custard, did even better. Same-store sales rose 5.8% at company-owned units of the 31-unit chain.
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