Picking winners and losers from the third quarter has proven to be a difficult exercise. Most chains’ sales were generally strong and most publicly traded companies outside of urban markets have recovered from the pandemic.
But profitability concerns were pervasive as were fears of an economic recession and the impact of inflation on low-income diners. On balance, even executives of the strongest performing companies were muted on their earnings calls as a result.
Still, look closely and there remain some clear winners from the last quarter so let’s get at it.
Winner: Fine dining
We probably are coming to an end to the remarkably strong run of fine-dining chains coming out of the pandemic, if for no other reason than comparisons just get really difficult from here on.
Still, fine dining chains’ average same-store sales on a three-year basis were up 28% last quarter. STK’s same-store sales are up a stupid 84% since before the pandemic.
The reason is simple. While low-end consumers are struggling, high-end consumers are spending like Richard Pryor in Brewster’s Millions. And that’s been a boon to companies like STK and Ruth’s Chris.
Loser: The drive-thru
Oh sure. Shake Shack’s drive-thru did well and plenty of chains with drive-thru lanes performed well. But we can’t shake comments from McDonald’s that its drive-thru sales returned to something closer to pre-pandemic levels last quarter.
We also can’t shake the 3.3% decline at Dutch Bros when giant Starbucks was able to generate 9% same-store sales growth and is now up 20% over where it was three years ago.
No, the drive-thru isn’t dead. But perhaps it’s time to rethink the idea that consumers will do nothing but use those lanes in the future.
Winner: Papa John’s
The Louisville, Ky.-based pizza chain is up 36% on a three-year basis. More to the point, it generated 0.9% same-store sales growth last quarter when its top two rivals Domino’s (down 2.9%) and Pizza Hut (down 4%) did not.
One of the reasons has been Papa John’s use of third-party delivery services to offset a lack of drivers, something Domino’s has not done and Pizza Hut has only recently started. But the company also focused on premiumization. That has likely attracted a higher-spending consumer. Or maybe people just like their crust stuffed with tons of cheese.
Loser: KFC
The most difficult quarter, at least from a topline perspective, belonged to KFC, which blamed its 7% decline in the second period to difficult comparisons. But its performance highlights the gap that exists between the chain and Popeyes—which has struggled with labor issues in recent quarters as well as its own difficult comparisons.
But Popeyes’ sales remain 25% higher than they were three years ago, compared with 10.5% for KFC. Given Popeyes’ stronger unit growth, it appears just a matter of time when the Miami-based chain overtakes its longtime rival.
Winner: Taco Bell
Taco Bell last quarter brought back its Mexican Pizza and then ran out of ingredients so quickly that the product had to be pulled from the chain’s menu. (Though we note that David Gibbs, CEO of parent company Yum Brands, called the Mexican Pizza an “LTO” on the company’s second-quarter earnings call, which caused us to raise an eyebrow.)
Limited time offer or not, the Mexican Pizza drove strong sales at the fast-food Mexican chain, whose same-store sales rose 8%.
Loser: Krispy Kreme
The doughnut chain is one of the more difficult concepts to understand, given its use of unique terms like “DFD doors” and focus on “organic” sales growth rather than same-store sales. That can make it difficult to fully grasp the omnichannel doughnut chain’s overall strategy and growth.
But one thing remains perfectly clear to Wall Street and that’s profitability. And despite its growing sales, the Charlotte-based chain’s profits went down and its stock price took a massive plunge.
Winner: Starbucks?
We would be amiss if we did not note that Starbucks’ same-store sales are now up nearly 20% from pre-pandemic levels and the company’s interim CEO, Howard Schultz, more or less says that its stores are so busy nobody goes there anymore.
Amazing, considering that the chain is undertaking a shakeup of epic proportions at its executive offices and keeps closing stores that coincidentally have union drives.
Loser: After-hours Sweetgreen sellers
Sweetgreen earlier this month cut 5% of its workforce, issued a stark warning on sales and profits, and investors sold. Its stock price plunged in after-hours trading—it was down as much as 20%.
And then the next morning it was like nothing happened. It actually rose 8% the next day and was up 25% since the close of trading the day of its earnings, meaning anyone who sold the stock after watching those earnings lost out on a nice run.