WEBVTT - Negative Earnings Revisions Loom for Restaurants 0:00:23.120 --> 0:00:24.239 Welcome to Chopping It Up. 0:00:24.720 --> 0:00:27.120 I'm your host, Mike Halon, the senior restaurant food Service 0:00:27.160 --> 0:00:30.840 analyst at Bloomberg Intelligence. Our research and that of bi's 0:00:30.880 --> 0:00:34.160 five hundred analysts around the globe can be found exclusively 0:00:34.159 --> 0:00:37.480 on the Bloomberg terminal. Today, we're joined by Greg Frankfurt, 0:00:37.520 --> 0:00:40.479 Director and lead restaurant analyst at Gougenheim Partners. 0:00:40.760 --> 0:00:41.920 Thanks for joining me, Greg. 0:00:42.400 --> 0:00:44.720 Of course I love this. I think I was your 0:00:44.760 --> 0:00:47.479 first first guest mic on this, so we had to 0:00:47.520 --> 0:00:48.560 go back for round two. 0:00:49.040 --> 0:00:51.840 Yes, you are our first guest. That was a little 0:00:51.880 --> 0:00:55.000 over two years ago. Now you're our first repeat guest. 0:00:55.280 --> 0:00:56.080 Oh this is great. 0:00:56.480 --> 0:00:57.840 Yeah, it's great to have you back. 0:00:57.920 --> 0:00:59.280 Do I get Do I get a T shirt? Or 0:00:59.320 --> 0:01:02.120 do I get a award or something like that? 0:01:03.480 --> 0:01:06.120 Yeah, I could see to put something. I can see 0:01:06.200 --> 0:01:08.520 to put something together. I definitely can get you some 0:01:08.560 --> 0:01:09.959 Bloomberg swag, that's for sure. 0:01:10.480 --> 0:01:13.119 Sweet. All right, so I. 0:01:13.080 --> 0:01:15.839 Guess let's start at the top. You having fun picking 0:01:15.880 --> 0:01:16.600 stocks right now? 0:01:17.440 --> 0:01:20.040 No, No, not at all. 0:01:20.640 --> 0:01:26.600 It's a very difficult environment, I think, both from a 0:01:26.640 --> 0:01:30.640 restaurant industry environment but also from a stock picking environment 0:01:32.080 --> 0:01:34.440 the industry. If I just kind of step back and 0:01:34.480 --> 0:01:40.280 look at twenty twenty four. You know, we came into 0:01:40.600 --> 0:01:44.680 sort of first quarter earning season with sales under some challenges, 0:01:45.959 --> 0:01:48.640 and I think a lot of companies approached earnings and 0:01:48.880 --> 0:01:51.560 this was back in April with a hope that the 0:01:51.600 --> 0:01:53.920 year would get better and that that was kind of transitory. 0:01:54.800 --> 0:01:56.960 I don't think things have gotten a lot worse, but 0:01:57.000 --> 0:02:00.520 I would definitely say they haven't gotten better, and and 0:02:00.560 --> 0:02:02.920 that puts a lot of a lot of the guidances 0:02:03.280 --> 0:02:07.720 for this year under some probably negative earnings revisions rather 0:02:07.760 --> 0:02:12.440 than positive earnings revisions. That's the backdrop for the space. 0:02:12.480 --> 0:02:14.440 I think even in the last three or four weeks 0:02:15.000 --> 0:02:17.720 maybe have been under even a little bit more sales pressure. 0:02:17.720 --> 0:02:19.400 And so I think there's a lot of investors out 0:02:19.400 --> 0:02:23.760 there really worried that the low income consumers tapping out 0:02:23.760 --> 0:02:29.320 a bit, and restaurants where maybe historically have been viewed 0:02:29.320 --> 0:02:33.119 as very defensive, I think likely are. But I think 0:02:33.120 --> 0:02:36.400 that that kind of assumption is is getting a second 0:02:36.400 --> 0:02:41.440 look from a stock perspective. I don't know if I've 0:02:41.480 --> 0:02:46.480 seen a point at which companies that are beating there 0:02:46.520 --> 0:02:49.200 seems to be no valuation ceiling, and if you have 0:02:49.240 --> 0:02:52.280 positive traffic, you look at Wingstop, you look at Cavo, 0:02:52.320 --> 0:02:55.720 you look some of those names. If you are missing 0:02:56.639 --> 0:02:59.079 or if you're under some pressure. I mean, I'm starting 0:02:59.080 --> 0:03:01.600 to get deep down you folks looking at some quick 0:03:01.639 --> 0:03:06.360 service uh, restaurant, restaurant, franchise ors that that hasn't happened 0:03:06.840 --> 0:03:10.359 in the twelve years I cover the space, so that 0:03:10.360 --> 0:03:12.320 that just that just goes to show you where. 0:03:12.080 --> 0:03:12.640 We are. 0:03:14.080 --> 0:03:17.240 And uh and and for a lot of those names, 0:03:17.400 --> 0:03:19.120 are you hitting a level where you don't even necessarily 0:03:19.160 --> 0:03:21.600 need a catalyst because the valuations are low up? I 0:03:21.600 --> 0:03:24.000 mean that that seems to be the outstanding question right now. 0:03:25.440 --> 0:03:27.919 Yeah, some of these stocks have gotten beaten down over 0:03:27.919 --> 0:03:31.520 the last month or so. You know, somebody must know 0:03:31.560 --> 0:03:34.360 something that I don't. But yeah, it's a it's a 0:03:34.360 --> 0:03:37.160 tough environment, man. You know, comps are getting easier, but 0:03:38.240 --> 0:03:41.080 low income consumer seems to be to your point, tapping 0:03:41.120 --> 0:03:41.800 out a bit here. 0:03:42.760 --> 0:03:47.520 I just looked I think revolving credits up. I think 0:03:47.520 --> 0:03:50.240 it was around eighty five billion year over year, which 0:03:50.840 --> 0:03:53.000 on the grand scheme of things, that's not a big number. 0:03:53.000 --> 0:03:55.240 I mean, you're you're talking about twenty trillion dollars of 0:03:55.560 --> 0:03:59.640 annual UH consumer expenditures one hundred billion dollars here, one 0:03:59.680 --> 0:04:01.760 hundred billion dollars. There's are big numbers, but not big 0:04:01.800 --> 0:04:04.400 in the scheme of things. But that number is up 0:04:04.400 --> 0:04:08.240 I think seven percent year over year. And the loan 0:04:08.240 --> 0:04:10.600 consumer has been leaning on credit in a way they 0:04:10.640 --> 0:04:16.440 had it for a while, and that's concerning because you 0:04:16.480 --> 0:04:19.320 can't do that for effort. Yeah, it just doesn't work. 0:04:19.320 --> 0:04:20.200 That doesn't work. 0:04:20.480 --> 0:04:23.880 Yeah, interesting, you know, we look, we look at a 0:04:23.880 --> 0:04:28.680 few data points. We look at total credit card total 0:04:28.680 --> 0:04:31.479 credit card debt, and it was up thirteen percent in 0:04:31.520 --> 0:04:34.839 the first quarter. Wow, not not a great number, but 0:04:35.360 --> 0:04:38.040 creative change actually improved the fourth quarter and the third 0:04:38.120 --> 0:04:41.640 quarter were up seventeen eighteen percent, so that's kind of improved. 0:04:41.720 --> 0:04:45.760 Where we see some stresses on delinquencies, those are actually 0:04:45.880 --> 0:04:49.760 credit card and auto loan delinquents are actually actually accelerated 0:04:49.800 --> 0:04:53.000 in the first quarter. So yeah, that's something we watch 0:04:53.080 --> 0:04:57.480 pretty closely. All right, cool, let's talk coffee. Man, you're 0:04:57.520 --> 0:05:00.520 neutral on Starbucks and Dutch Bros. What do we need 0:05:00.560 --> 0:05:03.320 to know about those those two stories right now? 0:05:04.360 --> 0:05:07.520 I think coffee and look, we just updated our numbers 0:05:07.560 --> 0:05:11.760 recently on On Bros. I think coffee has been one 0:05:11.800 --> 0:05:15.560 of the most fascinating categories for the rest of industry, 0:05:16.400 --> 0:05:19.839 and the reason for that is because it is probably 0:05:19.880 --> 0:05:25.599 the area, alongside chicken, with the fastest demand growth. Consumers 0:05:25.600 --> 0:05:28.760 are rotating towards that they're increasing their caffeine consumption every year, 0:05:30.040 --> 0:05:33.000 and so that provides a lot of tailwind to store development. 0:05:34.120 --> 0:05:37.039 It provides a lot of opportunity for new chains and 0:05:37.080 --> 0:05:39.479 new brands to emerge without necessarily having to have a 0:05:39.480 --> 0:05:45.159 big impact on the existing chains. I think the challenges 0:05:45.200 --> 0:05:47.120 we see it is there may just be a bit 0:05:47.120 --> 0:05:51.040 too much supply coming on. And I mean, you look, 0:05:51.120 --> 0:05:54.320 you think about the category. Starbucks just posted a negative 0:05:54.320 --> 0:05:58.000 comp in the US for the first time. I don't 0:05:58.000 --> 0:06:00.640 even know if we have it recorded get it before 0:06:02.160 --> 0:06:07.400 the UH and then Dutch Bros. Even last year the 0:06:07.720 --> 0:06:09.599 sales had slowed quite a bit to the point where 0:06:09.600 --> 0:06:12.680 they were kind of bouncing around barely positive to a 0:06:12.680 --> 0:06:14.720 big acceleration their sales in the first quarter. So it's 0:06:14.800 --> 0:06:20.440 it's it's it's very dynamic. We're looking at Starbucks now 0:06:20.520 --> 0:06:23.080 has about sixteen thousand locations in the US and is 0:06:23.080 --> 0:06:25.159 adding about four percent a year or is trying to 0:06:25.160 --> 0:06:26.800 get their unit growth about four percent a year. That 0:06:26.800 --> 0:06:30.640 would be six hundred locations, six hundred fifty locations year. 0:06:30.680 --> 0:06:32.400 That's a lot of stores to go in on a 0:06:32.920 --> 0:06:36.200 brand that's doing about thirty billion in sales. And then 0:06:36.279 --> 0:06:38.560 and then Dutch Bros. Isn't really the only one that's 0:06:38.640 --> 0:06:43.200 kind of this upstart category that is that is growing 0:06:43.200 --> 0:06:45.880 really quickly. You have seven Brew and Scooters and Big 0:06:45.960 --> 0:06:49.960 b and Caribou and Eliano's, and there's there's probably ten 0:06:50.040 --> 0:06:53.880 or fifteen chains that represent about four thousand locations adding 0:06:53.920 --> 0:06:56.479 eight hundred a year, adding twenty percent growth. So there's 0:06:56.480 --> 0:06:59.560 a lot of capacity coming on in the category. I 0:06:59.600 --> 0:07:01.920 think we're gonna see that start to shake out a 0:07:01.960 --> 0:07:03.799 little bit this year. We've we've gone through a bunch 0:07:03.800 --> 0:07:07.359 of industry data points to suggest that that some of 0:07:07.400 --> 0:07:11.240 those chains are starting to slow. I think that will 0:07:11.280 --> 0:07:13.720 be healthy, and we're gonna be watching it very closely. 0:07:13.720 --> 0:07:17.520 But I think that's been our biggest issue for the categories. 0:07:17.800 --> 0:07:21.200 Demand's great. Demand growth is great. Supply growth might be 0:07:21.280 --> 0:07:21.840 even greater. 0:07:22.280 --> 0:07:24.840 Yeah, yeah, no, And you've been right, So that's good stuff. 0:07:24.880 --> 0:07:28.440 You know, Historically they've always had such good, nice premium 0:07:28.520 --> 0:07:31.880 multiples because of that strong unit economics, right, the strong 0:07:32.360 --> 0:07:37.920 the low investment of sales ratios, the strong margins. But yeah, 0:07:38.080 --> 0:07:41.760 with they've definitely been under pressure now for some time. 0:07:42.360 --> 0:07:46.480 It's great. It's great selling something that's mostly water. Great, 0:07:46.480 --> 0:07:48.320 it's a great margin business. 0:07:48.360 --> 0:07:51.520 Fantastic, and it's addictive, right and need. 0:07:51.440 --> 0:07:55.200 Too and sugar you get to two different components to it. 0:07:55.360 --> 0:07:57.520 Yeah, and these companies aren't afraid to get kids hooked 0:07:57.560 --> 0:08:01.400 on the caffeine and sugar early either. So yeah, did 0:08:01.440 --> 0:08:04.760 the estimates reflect the jump in green coffee prices that 0:08:04.800 --> 0:08:06.760 we've seen over the last ten months. 0:08:07.080 --> 0:08:11.240 You've seen that I think, I mean Starbucks has historically 0:08:11.320 --> 0:08:15.480 hedged out about eighteen months, and so I mean sometimes 0:08:15.480 --> 0:08:17.760 that's bled down to kind of twelve fifteen months. But 0:08:18.200 --> 0:08:21.080 we're likely going to see that on you know, probably 0:08:21.360 --> 0:08:24.160 six nine months from now, maybe start to flow through 0:08:24.200 --> 0:08:26.040 the P and L. 0:08:26.240 --> 0:08:26.880 So yeah, that. 0:08:26.960 --> 0:08:32.440 That's that's gonna cause some pressure. It's interesting for Starbucks specifically. 0:08:33.840 --> 0:08:35.720 I think I think some of the challenges they've gotten 0:08:35.760 --> 0:08:38.640 into is they they initially gave a long term guidance 0:08:38.720 --> 0:08:43.240 range under under Howard Schultz when it was about two 0:08:43.320 --> 0:08:46.959 to three months post peak CPI, and I think that's 0:08:47.320 --> 0:08:50.400 was a very difficult time to give a guidance range. 0:08:51.600 --> 0:08:54.360 And they gave seven to nine percent comps, which they've 0:08:54.360 --> 0:08:57.160 done at points in various points in history, but not 0:08:57.320 --> 0:09:01.839 when they've had sixteen thousand locations. And I think that 0:09:01.920 --> 0:09:04.199 put the incoming CEO in a bit of a tough 0:09:04.240 --> 0:09:06.679 position where he was trying to chase and earnings an 0:09:06.720 --> 0:09:09.240 earnings algorithm that was going to have to be more 0:09:09.280 --> 0:09:11.920 margin driven if he was to get there, and he's 0:09:11.920 --> 0:09:15.080 pivoted that way. He's taken the camp guidance down, he's 0:09:15.080 --> 0:09:18.120 taken the margin guidance up, and I think they've had 0:09:18.200 --> 0:09:21.760 some other idiosyncratic factors that have driven comps even lower 0:09:21.760 --> 0:09:24.880 than maybe he would have expected as a possibility. 0:09:25.880 --> 0:09:29.120 Yeah, that that stock's been under a ton of pressure, 0:09:30.720 --> 0:09:33.360 How do you feel about their initiatives that they they've 0:09:33.520 --> 0:09:36.400 they've they put in place on that last earnings call. 0:09:37.360 --> 0:09:40.320 It's interesting. I think the stock just at seventy six 0:09:40.360 --> 0:09:43.480 bucks a share, and it's it's as of when we're 0:09:43.480 --> 0:09:46.040 recording this, it's below that it does have an over 0:09:46.080 --> 0:09:47.839 three percent dividing yields, So I think it's going to 0:09:47.880 --> 0:09:51.560 attract some investors who are focused on the yield, which 0:09:51.640 --> 0:09:54.280 which has not been someone who's r Star Wicks has 0:09:54.280 --> 0:09:56.080 been more of a growth story, less of a value 0:09:56.120 --> 0:10:00.680 dividend story in a long time. But yeah, I think 0:10:00.760 --> 0:10:04.440 I think, look, the initiatives are doing kind of makes sense. 0:10:04.440 --> 0:10:06.760 I mean, like like, particularly from a product standpoint. I mean, 0:10:06.760 --> 0:10:10.400 I've tried most of them. I've tried the spicy lemonades. 0:10:10.440 --> 0:10:12.720 We had the whole sales desk trying the spicy lemonades. 0:10:13.840 --> 0:10:16.880 I had the bubble tea one of the few clients, 0:10:16.880 --> 0:10:19.280 and we went and tried the energy drinks. I think 0:10:19.280 --> 0:10:24.120 they're all decent products. I'm not sure they are are 0:10:24.360 --> 0:10:27.520 visible enough to the consumer with how much they're putting 0:10:27.559 --> 0:10:32.040 out there. From a product perspective, it almost I think 0:10:32.120 --> 0:10:34.400 might get lost in the shuffle and the noise. One 0:10:34.440 --> 0:10:38.760 of my concerns is that trying to address the customer's 0:10:38.760 --> 0:10:42.439 not using your mobile phone with digital apps and and 0:10:43.760 --> 0:10:46.600 trying to push text messages to them may not be 0:10:46.679 --> 0:10:49.439 the right strategy to re engage some of those customers. 0:10:51.160 --> 0:10:53.480 I think I think maybe a little bit more aggressive 0:10:53.520 --> 0:10:56.160 invisible marketing in terms of what they're actually putting out there. 0:10:56.160 --> 0:10:59.280 From a product perspective, is is what I would suggests 0:10:59.320 --> 0:11:00.880 as the right way to get more visibility. 0:11:01.240 --> 0:11:01.440 Yeah. 0:11:01.480 --> 0:11:03.400 I think that's a great point. What do you feel about, Uh, 0:11:03.400 --> 0:11:04.679 how do you feel about the discounting? 0:11:05.720 --> 0:11:09.439 The discounting is a industry wide phenomenon right now and 0:11:09.480 --> 0:11:12.120 so and I think part of it is if you 0:11:12.280 --> 0:11:15.880 did not have the discounting, you would have had very 0:11:15.920 --> 0:11:21.320 strong margins in twenty twenty four. And this industry is 0:11:21.360 --> 0:11:26.520 too big and too competitive and too fragmented for everyone 0:11:26.600 --> 0:11:28.560 to have structurally higher margins. And so I think what's 0:11:28.600 --> 0:11:31.959 happening is you're seeing these companies, One the consumers under 0:11:31.960 --> 0:11:33.760 a little bit of pressure, and two the margin the 0:11:34.080 --> 0:11:37.119 cost inflation to come down, and they're kind of chasing 0:11:37.320 --> 0:11:40.800 that back down. I went in, I had three of 0:11:40.840 --> 0:11:44.320 the energy drinks, and I think I've paid twenty three 0:11:44.320 --> 0:11:47.880 bucks for it. Wow, that's expensive. Ook Starbucks has always 0:11:47.920 --> 0:11:51.079 been expensive, But that's that's that's a lot. If you're 0:11:51.080 --> 0:11:52.280 a while, it's under some pressure. 0:11:52.600 --> 0:11:55.280 Yeah, yeah, for sure. And they're seeing that in China too. 0:11:55.360 --> 0:11:57.800 China's a concern. But I'd like to like to move 0:11:57.920 --> 0:12:00.840 keep this movement does the social media. The attention around 0:12:00.880 --> 0:12:03.280 Chipotle's portion sizes concern you. 0:12:04.040 --> 0:12:08.839 Oh man, yeah, my my, my ability to follow the 0:12:09.400 --> 0:12:12.520 hottest thing on TikTok and and the complaints of the 0:12:13.520 --> 0:12:16.679 of of each of each consumer on TikTok has been 0:12:16.800 --> 0:12:17.400 very difficult. 0:12:17.559 --> 0:12:20.320 I I'm not that concerned about it. I thought it 0:12:20.400 --> 0:12:23.280 was interesting. I saw the report You probably saw it too, 0:12:23.360 --> 0:12:27.160 that the Wells Fargo I think it was Zach Fadam 0:12:27.200 --> 0:12:29.320 put out at Wells Fargo a couple of weeks ago 0:12:29.360 --> 0:12:33.000 on the variability of portion sizing. I thought it was interesting, 0:12:34.960 --> 0:12:38.520 not surprising. I mean, I'm a pretty regular Chipotle customer. 0:12:40.520 --> 0:12:45.600 I think the challenges with a lot of these stocks 0:12:45.679 --> 0:12:49.360 is that they're great businesses with great traffic growth. It's 0:12:49.400 --> 0:12:51.000 just a matter of what you want to pay for them. 0:12:51.000 --> 0:12:54.480 And that's what we've struggled with for a while, and 0:12:54.559 --> 0:12:56.720 I think we we've tended to try to lean into 0:12:58.200 --> 0:13:03.680 businesses with some level of growth, high returns, but maybe 0:13:03.720 --> 0:13:05.760 a little bit of a more reasonable valuation. I think 0:13:05.760 --> 0:13:08.360 Texas Roadhouse would fit fit in well into that uh 0:13:08.440 --> 0:13:09.840 into that that bucket? 0:13:10.720 --> 0:13:13.560 All right, that's one of your favorite names. Uh, why 0:13:13.600 --> 0:13:15.280 don't you talk to us a little bit about that one. 0:13:16.280 --> 0:13:19.760 Yeah, it's look, I hadn't covered it for a long time. 0:13:19.840 --> 0:13:22.920 We just picked it up early last year, and I 0:13:22.920 --> 0:13:26.200 mean I've kind of followed it from a from an 0:13:26.320 --> 0:13:29.040 arms length for a while, and I don't think I realized. 0:13:29.080 --> 0:13:32.079 I think if you're not paying attention that close to 0:13:32.160 --> 0:13:35.040 the industry, it's hard to realize how good of a 0:13:35.080 --> 0:13:38.079 competitive position they're in. I mean, I think that the 0:13:38.800 --> 0:13:42.120 restaurants that are performing best right now are ones where 0:13:42.120 --> 0:13:45.360 they have a mode on pricing and traffic. Do you 0:13:45.360 --> 0:13:49.520 think about Domino's and Pizza and how much how much 0:13:49.600 --> 0:13:52.080 cheaper they are than than than Pizza and Papa John's. 0:13:53.120 --> 0:13:56.280 Do you think about Chipotle in a fast casual space? 0:13:56.800 --> 0:13:59.960 You think about Texas Roadhouse, think about even wing stopping. 0:14:00.000 --> 0:14:01.360 I mean some people have tried to figure out what 0:14:01.400 --> 0:14:06.600 wingstop strengths are. Go to Indianapolis, go to Wichita, and 0:14:07.120 --> 0:14:10.120 go to the four or five local wing joints. They're 0:14:10.400 --> 0:14:12.800 fifteen percent more expensive than wingstop. I think that has 0:14:12.840 --> 0:14:16.400 a lot to do with it. And Texas road has 0:14:16.440 --> 0:14:18.480 just recently in the last couple of years, passed out 0:14:18.480 --> 0:14:21.640 back as the number one stake player by sales in 0:14:21.680 --> 0:14:27.080 the US, and I think if you go, it's actually 0:14:27.240 --> 0:14:30.240 very easy. Steaks are very standardized, so you have like 0:14:30.280 --> 0:14:32.160 your eight ounce fil A, you have your Surlo and 0:14:32.160 --> 0:14:35.560 there they're by weight and everything comes with two sides, 0:14:35.560 --> 0:14:37.120 so it's like it's very easy to stack them up 0:14:37.120 --> 0:14:41.000 against each other. And Roadhouse is double digits cheaper than 0:14:41.000 --> 0:14:44.560 their biggest competitors, and yet they're doing seventy eighty percent 0:14:44.640 --> 0:14:47.480 more traffic per chair. It's not even like the restaurants 0:14:47.520 --> 0:14:49.920 are the restaurant's a little bit bigger, but not substantially bigger. 0:14:51.000 --> 0:14:54.160 They are just winning on a low price point where 0:14:54.160 --> 0:14:57.440 they are getting customers through more quickly than their competition. 0:14:57.760 --> 0:15:00.400 And that is a fantastic competitive position to be in. 0:15:02.360 --> 0:15:04.000 And so I think, and the other thing that's missed 0:15:04.040 --> 0:15:06.760 is that's it's not just stakes. Their drinks are forty 0:15:06.800 --> 0:15:08.760 fifty percent cheaper than a lot of their competitors. Their 0:15:08.760 --> 0:15:11.200 average check is twenty percent lower. I mean, it is 0:15:11.200 --> 0:15:15.480 in a fantastic competitive position. They're still growing five percent 0:15:15.560 --> 0:15:18.240 unit growth in the US, and it's one that's I mean, 0:15:18.280 --> 0:15:20.680 the stocks expand it's up a lot the last six nine, 0:15:20.720 --> 0:15:23.840 twelve months, but you know, when you look at the 0:15:24.000 --> 0:15:26.720 realm of who's growing traffic and who's growing double digit 0:15:27.040 --> 0:15:30.120 revenue growth, kind of a load of mid twenty times 0:15:30.120 --> 0:15:32.320 pe multiple is not crazy for this stock. 0:15:32.920 --> 0:15:36.560 Yeah, and they're they're operators, man, I love I love 0:15:37.120 --> 0:15:39.240 restaurant chains that are operator lad. 0:15:39.840 --> 0:15:42.600 Oh yeah, I mean it's it's I feel like Jerry 0:15:42.640 --> 0:15:44.160 jumps on the call and you want to run through 0:15:44.160 --> 0:15:46.520 a wall for the brand. You know. I come away 0:15:46.560 --> 0:15:49.560 feeling like I'm I'm working Texas Roads and I'm excited. 0:15:50.160 --> 0:15:53.200 It's like he's very, very and uh. I think in 0:15:53.240 --> 0:15:55.600 the in the shift from Kent to Jerry, there was 0:15:56.000 --> 0:15:59.040 some concern about maintaining that, but I think he's proven 0:15:59.440 --> 0:16:01.480 absolutely be a good leader for this concept. 0:16:02.240 --> 0:16:05.120 And it's so important, you know, it's so important to 0:16:05.200 --> 0:16:08.520 have a leader that you know, team members believe in 0:16:08.600 --> 0:16:10.880 and gms believe in and want to work for and 0:16:10.880 --> 0:16:14.120 bust their butts for. You know, It's it's it's critical. 0:16:14.400 --> 0:16:18.000 So yeah, I think it's it's awesome. It's awesome to see. 0:16:18.040 --> 0:16:19.200 It's been a fun one to cover. 0:16:19.320 --> 0:16:19.720 For sure. 0:16:20.320 --> 0:16:22.680 Sometimes us on Wall Street, I think we forget how 0:16:22.720 --> 0:16:26.040 important it is to have the general manager in place. 0:16:26.080 --> 0:16:28.720 That's really strong. I mean I've kind of realized that 0:16:28.760 --> 0:16:30.600 over the years, but it's taken me some time. 0:16:31.320 --> 0:16:34.240 Right, and that that general, the fact that their gms 0:16:34.280 --> 0:16:35.440 have skin in the game is great. 0:16:35.720 --> 0:16:39.440 You know, that's that old old school's outback model. 0:16:39.680 --> 0:16:43.360 You know that not everybody can do uh these and 0:16:43.360 --> 0:16:47.120 and Longhorn and Texas road House sales tend historically tend 0:16:47.120 --> 0:16:49.840 to do pretty well amid stake inflation. 0:16:49.960 --> 0:16:54.040 Right, Yeah, I mean, that's that's that's been We've started 0:16:54.040 --> 0:16:57.920 to see evidence of that moving. I think the last 0:16:57.960 --> 0:17:02.640 couple of years, pasture conditions have been pretty poor, and 0:17:02.680 --> 0:17:06.960 so a lot of farmers have just been sending cattle 0:17:07.000 --> 0:17:09.080 to slaughter rather than leaving them in the field, which 0:17:09.160 --> 0:17:13.280 is exacerbated it was already a pretty bad supply condition. 0:17:14.440 --> 0:17:16.720 You're starting to see that reverse, and you're starting to 0:17:16.720 --> 0:17:19.840 see state prices go up quite a bit, and Roadhouse 0:17:19.880 --> 0:17:23.520 has underpriced that. I think anyone looking at next three, six, 0:17:23.640 --> 0:17:26.600 nine months of earnings may get a little freaked out 0:17:26.600 --> 0:17:28.440 if you get a little bit of a bump in inflation. 0:17:29.280 --> 0:17:32.040 But this data has proven to be kind of add 0:17:32.080 --> 0:17:35.560 to Roadhouse's strength rather than detract from it. 0:17:36.320 --> 0:17:39.840 All, Right, let's stick to full service here. Darden is 0:17:39.880 --> 0:17:40.720 one of the names you like. 0:17:40.800 --> 0:17:44.320 What were the key takeaways for you from last month's 0:17:44.359 --> 0:17:44.960 earning squall? 0:17:45.400 --> 0:17:49.520 Yeah, I think the they're the bell weather for the industry. 0:17:49.720 --> 0:17:51.920 They're the first ones to have to really guide the 0:17:51.960 --> 0:17:57.239 next four quarters, the next twelve months. Sales have been 0:17:57.320 --> 0:17:59.919 under some pressure. There's no doubt about that. They may 0:18:00.200 --> 0:18:04.800 bet during COVID to basically take six seventy eight percent 0:18:04.880 --> 0:18:07.040 less pricing over the next several years in their peers, 0:18:08.080 --> 0:18:10.119 and the way they funded that, or at least how 0:18:10.119 --> 0:18:12.200 I see it as the way they funded that by 0:18:12.280 --> 0:18:16.560 lowering their advertising, so they're advertising is kind of one 0:18:16.600 --> 0:18:18.520 percent of sales. It was three percent of sales. That's 0:18:18.560 --> 0:18:22.600 a big change. And I think the other thing they've 0:18:22.600 --> 0:18:25.240 done is they've reduced the discounting. And I think when 0:18:25.320 --> 0:18:29.400 people look at the opportunities that Darden has to reinvigorate traffic, 0:18:29.920 --> 0:18:32.680 they go, well, you got to advertise more and discount more. 0:18:33.119 --> 0:18:39.159 And the company's very hesitant to to discount. But I 0:18:39.200 --> 0:18:41.560 think if they were to add thirty forty to fifty 0:18:41.560 --> 0:18:45.399 BIFs of advertising back into the business, not necessarily a 0:18:45.440 --> 0:18:48.720 discount of price points just to get the visibility back up. 0:18:48.760 --> 0:18:51.879 I think investors would be very receptive to that as 0:18:51.880 --> 0:18:55.840 a strategy. You know, they've talked a little bit about 0:18:56.960 --> 0:19:00.320 pressure on the under seventy five thousand income households and 0:19:00.359 --> 0:19:02.840 we're worried about that. We're worried about that across the industry. 0:19:03.600 --> 0:19:07.720 But I think Darden should be in a position where 0:19:08.160 --> 0:19:11.760 competitively they are winning over their peers. 0:19:12.240 --> 0:19:17.200 Scale matters, It totally does. Yeah, all right, let's flip 0:19:17.280 --> 0:19:18.920 to QSR. 0:19:19.160 --> 0:19:21.720 We haven't spoken about QSR really too much yet, so 0:19:22.920 --> 0:19:26.320 seemingly in an effort to remind consumers that they can 0:19:26.440 --> 0:19:31.200 provide value, McDonald's offered their five dollars meal two three 0:19:31.240 --> 0:19:33.520 weeks ago. Burger King actually beat them to the punch 0:19:33.800 --> 0:19:37.840 with their five dollars combo. Is this as low as 0:19:38.040 --> 0:19:40.600 these QSR chains are going to go? Are we going 0:19:40.680 --> 0:19:43.280 to see deeper discounting in the next six to twelve months. 0:19:43.680 --> 0:19:45.800 I don't know. If you're going to see deeper discounting, 0:19:45.840 --> 0:19:50.320 you might see lower price points. I think McDonald's a 0:19:50.359 --> 0:19:53.080 few years ago made this pivot to dollar one, two 0:19:53.160 --> 0:19:54.840 three from the dollar menu, and I think that was 0:19:54.840 --> 0:19:58.560 just a realization that sticking at one price point was 0:19:58.600 --> 0:20:02.360 hard to do. I think finding a solution to replace that, 0:20:03.160 --> 0:20:06.439 is it with visibility and equity in the platform, is 0:20:06.480 --> 0:20:09.040 going to be the number one focus. I don't think 0:20:09.080 --> 0:20:13.080 the four for five dollars meal is that solution. I 0:20:13.119 --> 0:20:16.480 think this is them trying to remind people that they 0:20:16.560 --> 0:20:19.560 have good value. I see. It's pretty interesting. I've been 0:20:19.560 --> 0:20:23.120 seeing in the in the mobile app recently dollar sodas 0:20:23.160 --> 0:20:25.399 in a way that I had not seen in a 0:20:25.440 --> 0:20:27.879 long time, and I know that was a change. I 0:20:27.880 --> 0:20:30.320 think in the twenty two they got off of that 0:20:30.359 --> 0:20:31.600 in a lot of markets, and I think that was 0:20:31.640 --> 0:20:33.360 a big part of the price increases that they've seen 0:20:33.400 --> 0:20:36.960 the last few years. And so that to me is 0:20:37.200 --> 0:20:39.040 you're going to see some of that pop up in 0:20:39.080 --> 0:20:44.320 different areas. But I think a solution to replace D one, 0:20:44.400 --> 0:20:46.679 two three, at some point, which we expect will come 0:20:46.760 --> 0:20:50.160 later this year, maybe more meaningful to actually driving lower 0:20:50.160 --> 0:20:51.160 price points in the industry. 0:20:51.640 --> 0:20:54.359 Yeah, they definitely catch some shade for not offering anything 0:20:54.400 --> 0:20:55.359 that's actually a buck. 0:20:55.480 --> 0:20:55.679 You know. 0:20:55.840 --> 0:20:58.919 It's like maybe if you're in like the Middle America, 0:20:58.960 --> 0:21:01.040 maybe you can get something for one, you know. 0:21:01.080 --> 0:21:04.160 But it's like the dollar stores offering things for five 0:21:04.200 --> 0:21:06.520 bucks you know how many dollars? 0:21:06.880 --> 0:21:09.359 Yeah, yeah, exactly exactly. 0:21:10.320 --> 0:21:13.000 But you know they've proven they can win in this environment, right, 0:21:13.080 --> 0:21:16.159 So even though one q fell short of expectations, do 0:21:16.160 --> 0:21:17.880 you feel the bolk case is still in talc here. 0:21:18.560 --> 0:21:22.240 I think I wouldn't bet against McDonald's. I think that's 0:21:22.280 --> 0:21:26.480 proven to be a very bad bet Historically. They just 0:21:26.560 --> 0:21:29.640 have such scale advantages, and I think they're they're going 0:21:29.720 --> 0:21:33.440 right after others in QSR who I think have owned 0:21:33.960 --> 0:21:37.080 this this this four and five dollars bundle in a 0:21:37.119 --> 0:21:39.520 way that McDonald's is not historically, and they're throwing a 0:21:39.560 --> 0:21:42.720 lot of advertising that I mean, if they had to, 0:21:42.920 --> 0:21:45.920 if sales do not find traction, they'll get they'll get 0:21:45.920 --> 0:21:48.120 Taylor Swift, or they'll get they'll they'll get Michael Jordan 0:21:48.160 --> 0:21:50.040