WEBVTT - Deep Dive: Restaurant Valuations

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, The.

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<v Speaker 2>Stock Movers podcast, your roundup of companies making moves in

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<v Speaker 2>the stock market. Harnessing the power of Bloomberg Data.

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<v Speaker 3>Let's take another look at consumer products, but look at

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<v Speaker 3>it at the lens of restaurants and restaurant valuations, kind

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<v Speaker 3>of the haves and have nots. Michael Hanlin, Bloomberg Intelligence

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<v Speaker 3>Senior restaurant and food service analyst, joins us now fresh

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<v Speaker 3>out of a recent report. So I asked Diana this

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<v Speaker 3>this like, who's the winner in the consumer staples? And

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<v Speaker 3>she was like ooh, And it took her a while

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<v Speaker 3>to get there because it's really rough.

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<v Speaker 4>Same question to you. Who are the winners in the

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<v Speaker 4>restaurant biz.

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<v Speaker 5>Two of the names that we really like this year

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<v Speaker 5>at Cracker Barrel and Shake Shack.

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<v Speaker 1>They Crackerbail.

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<v Speaker 4>I still got to go many the goals.

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<v Speaker 1>They hired new CEOs last year.

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<v Speaker 5>They're really focusing on improving the operations first and then

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<v Speaker 5>the marketing there, and so we're really excited about some

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<v Speaker 5>of the changes and some of the early results. You know,

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<v Speaker 5>both of them we expect to outperform pretty significantly on

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<v Speaker 5>the top line this year.

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<v Speaker 1>Well, the cracker barrel.

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<v Speaker 5>I mean, I know my way around a cracker bar

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<v Speaker 5>I know where every little nud nick is in every store.

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<v Speaker 1>Every store is the same. And then of course the

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<v Speaker 1>same order the Country Boy breakfast.

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<v Speaker 4>But what'sn't that am It's not like.

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<v Speaker 5>The country Boy breakfast with the country ham, Okay, and

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<v Speaker 5>you get biscuits and gravy.

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<v Speaker 1>It's a whole thing.

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<v Speaker 4>It's a whole thing.

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<v Speaker 1>It's a whole thing. Unbuttoned yourself and sit right down. Yeah,

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<v Speaker 1>what are they changing here? What is it? Because that's

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<v Speaker 1>kind of what they are. It seems like their DNA

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<v Speaker 1>is kind of that type of stuff.

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<v Speaker 2>Yeah.

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<v Speaker 5>So so one of the first things they did was

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<v Speaker 5>focus their menu, right. There was a lot of items

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<v Speaker 5>on there that were not selling very good and also

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<v Speaker 5>bogging down the kitchen. That has made the experience better

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<v Speaker 5>for the employees.

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<v Speaker 1>Employee turnover has plummeted.

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<v Speaker 5>It was down, you know, high teens year over year

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<v Speaker 5>in the last quarter. So that saves them a lot

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<v Speaker 5>of money on training and things of that nature provid

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<v Speaker 5>you know, as the longer your employees stay, obviously, the

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<v Speaker 5>better experience your customers get and then people come back.

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<v Speaker 5>They're also touching up the stores. They're going to remodel

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<v Speaker 5>the stores. Lighting and paint are some are some of

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<v Speaker 5>the things that they're going to do across all the stores.

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<v Speaker 1>Some of the stores need more work. They'll do the

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<v Speaker 1>floors as well.

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<v Speaker 5>That's something they're starting to do. And then they're ramping

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<v Speaker 5>up the marketing. So now that the operations are running well,

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<v Speaker 5>they're doing more social media marketing TikTok.

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<v Speaker 1>There.

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<v Speaker 5>They they just had their first NASCAR race and the

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<v Speaker 5>Cracker Barrow four hundred down in Tennessee, right Crystal, And

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<v Speaker 5>they're advertising on live sports as well as Bravo.

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<v Speaker 1>There's huge overlap.

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<v Speaker 5>Between casual dining fans and Bravo watchers and so yes,

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<v Speaker 5>I did not see that coming.

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<v Speaker 3>So on the other hand, what are some of the

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<v Speaker 3>companies that aren't doing so well?

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<v Speaker 5>Oh yeah, so, you know some of the legacy casual

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<v Speaker 5>dining brands. Casual dining in general is having somewhat of

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<v Speaker 5>a renaissance. This year's casual Chili's is the one they've

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<v Speaker 5>Chilies is rocking it absolutely, and Applebee's is not. So

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<v Speaker 5>you got you got your preferences confused right now? Backwards,

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<v Speaker 5>I'd say, so, yeah, dining brands which owns Applebee's and Ihop.

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<v Speaker 5>They're having a real, real hard time resonating with younger

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<v Speaker 5>consumers and haven't been able to bring those consumers into

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<v Speaker 5>the brand. They also have a large number of low

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<v Speaker 5>income consumers that visit those brands, and so that's really

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<v Speaker 5>hurting their hurting their results. And then blooming brands out

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<v Speaker 5>back steakhouses their biggest change. They've they've same type of situation.

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<v Speaker 5>They've struggled to bring in younger consumers into the brands,

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<v Speaker 5>and their pricing.

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<v Speaker 1>Got way ahead of itself.

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<v Speaker 5>So if you compare them to Texas Roadhouse, it's a

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<v Speaker 5>way more expensive experience and yet maybe not a better product,

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<v Speaker 5>not a better experience for the consumer, definitely not better service.

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<v Speaker 5>Your coverage is a great reflection of the consumer.

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<v Speaker 1>What are your takeaways? How is the consumer out there?

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<v Speaker 1>What are the restaurants telling you?

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<v Speaker 5>They're doing all right? They're doing all right. Last year

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<v Speaker 5>was a restaurant session. This year results are better and

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<v Speaker 5>we expect them to get better in the second half.

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<v Speaker 5>You know, first quarter there was some consternation, but it

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<v Speaker 5>was a lot of bad weather. There's a bad flu season.

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<v Speaker 5>There was some pullback by low and middle income consumers

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<v Speaker 5>in March, but they seem to have rebound. Results have

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<v Speaker 5>been pretty strong thus far, and the economic indicators that

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<v Speaker 5>we watch are starting to get a little bit better.

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<v Speaker 4>So unvalued appropriately for the conditions right now.

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<v Speaker 5>Well, you know me personally, I don't look at historical

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<v Speaker 5>valuations because the market cycles change so much.

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<v Speaker 1>I'm looking at it on a.

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<v Speaker 5>Relative basis, right, and so to what relative to the

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<v Speaker 5>peer group? Okay, yeah, and so I seem and so

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<v Speaker 5>it depends on the name, right, It definitely depends on

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<v Speaker 5>the name. But you know, I think restaurants are set

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<v Speaker 5>up for a nice strong second half. We also have

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<v Speaker 5>are going to have that tailwind of tax cuts, and

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<v Speaker 5>so I think just getting that, having that be the

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<v Speaker 5>narrative versus tariffs and war and whatever else, I think

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<v Speaker 5>it's going to help shift consumer sentiment and spending.

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<v Speaker 1>Just the quick service restaurants, which otherwise is fast food.

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<v Speaker 1>How are they doing?

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<v Speaker 5>Fast food is struggling? Number one, they're lapping harder comparisons

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<v Speaker 5>from last year. Number two, they have more exposure to

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<v Speaker 5>low income consumers, which continue to be hurt by the

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<v Speaker 5>inflation that we've seen, right.

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<v Speaker 1>And number three, they've overbuilt.

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<v Speaker 5>So since since the pandemic, full service chains, casual dying

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<v Speaker 5>chains kind of pulled back on their development.

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<v Speaker 1>They closed stores. Fast food has.

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<v Speaker 5>Just been full steam ahead of opening stores, so supplying

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<v Speaker 5>demand has gotten out of whack.

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<v Speaker 4>All right, Michael, thanks a lot. Really appreciate really good stuff.

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