America's Top Restaurant Chains: By the Numbers
It wasn’t a mirage. This past earnings season was one of the more positive for publicly traded restaurant companies in recent quarters, perhaps even years. Many of the largest brands in America saw positive traffic and comparable same-store sales compared to the previous period. While 2017 was challenging pretty much across the board, it also signaled the beginning of what’s turning out to be one of the most transformational times in casual-dining history. Off-premise and technology are filling some of those gaps restaurants couldn’t bridge in past years. Declining traffic, increased competition from all sectors—fast casual, quick service, fine dining, eatertainment, and so on, as well a changing generation of customers, has vastly altered the landscape. Think back a couple of years: Did we think Red Robin would build a delivery-only concept? Would chains like Outback divert significant resources to off-premise? Casual dining chains have long rested on their standing in American dining culture. But in an industry where brands must sell their stories as much as their products now, it’s becoming increasingly crucial to find that message and figure out how best to distribute it—and to whom. Think Chili’s and Applebee’s, which are starting to revert back to core guests after straying into the something-for-everybody model. However you look at it, restaurants can’t afford to rest on their laurels and brand images anymore. It’s why the dynamic is shifting so drastically, and why the future is about as intriguing and exciting for these brands as ever.
Here’s a look at how some of the larger publicly traded companies are doing, numbers wise. Buffalo Wild Wings and Ruby Tuesday, which both recently went private in private-equity funded deals, were left out due to this change.
Total revenues (in millions): $604.8
Average unit volume: $2.077.4M
Total restaurants: 3,722
The parent company of Applebee’s and IHOP had an interesting fiscal 2017. That’s putting it rather lightly to be honest. The most visible change came at the end of the fourth quarter, when DineEquity became Dine Brands, and signaled the (unofficial) start of a five-year growth plan company executives believe will put the casual-dining powerhouses back on top. It’s been a rough tumble in recent quarters. Applebee’s systemwide sales in 2017 declined 6.8 percent at domestic units versus the prior-year period. IHOPs were up 0.7 percent systemwide. The company’s CAGR (compound annual growth rate), in regards to revenue, is down 6.6 percent in the past five years starting from December 31, 2017 and working back. Operating income has declined 3.1 percent. Not surprisingly, the company’s systemwide restaurant count, which currently sits at 3,722 total, is down 0.6 percent in that span (60–80 Applebee’s are expected to close this year). So yes, there’s no denying Dine Brands’ two concepts, notably Applebee’s, have work ahead to regain that perch. But there are positive signs. In this five-year plan, Dine Brands wants to strengthen the leadership team, invest in the brands, strategically expand the portfolio, and leverage tech, data, and analytics. In Q4, Applebee’s same-store sales rose 1.3 percent versus the prior-year period, and IHOP’s comps declined 0.4 percent. Both of those figures are promising given the recent negative comps, even if these are compared to steep high-digit declines in the previous year (negative 7.2 percent for Applebee’s and 2.1 percent for IHOP in Q4 2016). New president John Cywinski and CEO Stephen Joyce appear to have made significant ground already. Will it continue?
Total revenues (in millions): $7.630.9
Average unit volume: $4.644M
Total restaurants: 1,722
Note: Numbers for fiscal year ended May 28, 2017.
Darden likes to refer to a simplified strategy it took on three years ago for why it’s lighting the casual-dining industry on fire right now. Firstly, the parent of Olive Garden, Cheddar’s, The Capital Grille (and soon The Capital Burger), Eddie V’s, Seasons 52, Bahama breeze, and Yard House, saw its total sales boom 14.6 percent, year-over-year, to $1.88 billion in the second quarter (Darden is on a different fiscal calendar than most). For the sake of this three-year plan, which has resulted in a LongHorn menu 30 percent lighter than it once was, lets take a look at CAGR in that window. Total revenues are up 1 percent (9.1 percent in the past year). Operating income ballooned 29.9 percent to $703.1M. Net income is up 18.7 percent to $493.1M. AUV has risen 2.3 percent to $4.644M. How many casual-dining companies can show that kind of arrow across the system right now? Very, very few, if any. That’s an undeniably impressive set of results for a company that continues to redraw the blueprint for competitors. It’s why Darden is wheeling—buying Cheddar’s for $780M—and testing out that aforementioned burger concept. The company as a whole saw its total restaurant unit count increased 11.7 percent last fiscal year versus the previous one. That same figure is up 5.6 percent in the past five. Darden is simply getting it done right now. As CEO Gene Lee said in a 2Q conference call: “Our intense focus on improving the food, service, and atmosphere in our restaurants, combined with relevant integrated marketing, remains the winning strategy for our brands.”
Total revenues (in thousands): $4,213,346
Average unit volume: $3.504.3M (in the U.S.)
Total restaurants: 1,491
There’s a lot going on with Bloomin’ right now thanks to an activist investor battle behind the scenes. Obviously, it’s basically impossible to know what’s going on but any chain with JANA Partners in the mix is worth paying attention to. JANA owns about 8.7 percent of Bloomin’s outstanding common stock, and said it would support all nominees at the company’s 2018 meeting after Wendy A. Beck, the executive vice president and chief financial officer at Norwegian Cruise Line Holdings Ltd., was placed on the board. JANA is the same firm that took a stake in Whole Foods Market earlier in 2017 and then pushed it to sell. Eventually, the company went to Amazon for $13.7 billion. Is Outback next? Hard to say. Regardless, the steakhouse chain is carrying some momentum after a strong finish to 2018. Outback saw its same-store sales rise 4.7 percent, year-over-year, and, even more pleasing, recorded a traffic boost of 4.3 percent versus the prior-year period. Those are very promising numbers headed into 2018. As a company, Bloomin’ Brands, which also operates Carrabba’s, Bonefish Grill, and Fleming’s Prime Steakhouse and Wine Bar, has reported tepid growth in recent years, like many casual-dining companies. Using 2016’s fiscal results as a jump-off point, where average-unit volumes for the company were $3.204M across 1,490 restaurants (they’re up to $3.5M now), the company’s AUV rose 5 percent, although it was down 0.4 percent in the past three. Total restaurant count increased just 1 percent in that five-year span and operating income declined 9.8 percent to $110.3 (in millions). There are a lot of factors here, of course. The traffic number, however, is one Bloomin’ will hang its hat on moving forward. In fact, comps were positive across the board in Q4 (1.3 percent at Carrabba’s. 0.6 percent at Bonefish, 3.1 percent at Fleming’s, and 3.3 percent overall). Like Dine Brands, this is coming against a tough previous Q4, but at least it’s on the upswing. “This further validates our strategy that the investments we are making to elevate the core experience are paying off,” CEO Liz Smith said in the Q4 review. Eighteen months ago, the company began pivoting away from what she described as louder marketing techniques to investing more in the customer experience and digital research to more effectively and personally target consumers.
Total revenues (in thousands): $529,169
Average unit volume: $1.657M
Total restaurants: 1,735
Denny’s got off to a slow start in 2017 but closed on a high note. The chain’s domestic systemwide same-store sales increased 2.2 percent in Q4 versus the prior-year period. For the full year, comps lifted 1.1 percent, marking the seventh straight year of positive same-store sales for the brand. Denny’s franchisees opened 13 restaurants in the quarter, and the company debuted one, lifting the brand’s total to 1,735 restaurants. Denny’s opened 39 system restaurants in fiscal 2017 and said it plans to bring 40–50 new restaurants to market with about flat net growth. Denny’s has been a solid performer in the long haul. Looking at five-year CAGR, Denny’s total revenue is up 1.6 percent, operating income 4.6 percent to $70.7M, and AUV has increased 2.5 percent. There are signs Denny’s is only going to ramp up from here as well. Mainly, its technology focus has already paid dividends and is only growing. Not to mention a Heritage Model refresh program that’s about 70 percent of the way through the system. In May, Denny’s rolled out a new online ordering platform via Olo that revamped the chain’s mobile app, allowing users to find a local restaurant, customize and place an order, and pay for takeout. In select markets, guests can also order delivery. Some locations even offer the option 24/7. Off-premise sales are up 2 percentage points. In December of 2016, off-premise sales represented 6.6 percent of total sales at Denny’s. They grew 210 basis points to 8.7 percent of total sales in December. Currently, about 50 percent of Denny’s domestic system is actively engaged with one or more delivery service options as well.
Total revenues (in thousands): $3,150.837
Average unit volume: $2.648M
Total restaurants: 1,674
Note: These numbers reflect the fiscal year that ended June 28, 2017.
Brinker wrapped up its second-quarter review in January and much of the focus was on Chili’s self-described “turnaround strategy.” The chain has struggled with sagging traffic in recent quarters. In Q1, thanks to hurricane activity, traffic sunk nearly 9 percent. In Q4 it was down 6.5 percent and 5.8 percent for fiscal 2017. This and more prompted Brinker to rethink Chili’s menu and marketing strategy. The main point being: Get Chili’s back to its core. That resulted in slashing 40 percent of the brand’s menu to focus on operations and the menu offerings most recognized by guests—ribs, fajitas, margaritas, and burgers. The company even revived its “I want my baby back” jingle to stir those nostalgic strengths. So far, CEO Wyman Roberts said Chili’s has seen positive kickback from the changes. Same-store sales fell 1.5 percent in Q2 versus the prior-year period and traffic was down 4.4 percent. “At Chili's, this was the first full quarter in our turnaround strategy and we continue to see sales and traffic move in the right direction,” he said. “Operational execution is improving and we are delivering food faster and hotter. We've cut the number of our longest ticket times by half and we are seeing meaningful improvements in our key guest satisfaction methods.” Things are improving. A 1.5 decline in comps bested the 3.4 percent number in Q1. Brinker also enjoyed a 2.3 percent and 0.6 percent improvement in pricing and mix, respectively. But even looking back, those comps compared favorably with the prior-quarter decline of 3.4 percent and 3.3 percent drop in the year-ago quarter. And according to Roberts, employees are embracing the streamlined menu as well. Turnover is down and engagement is up. “We’re encouraged by the momentum, but we're not satisfied,” he said.
Total revenues (in thousands): $2,926,289
Average unit volume: $4.562M
Total restaurants: 648
Note: Numbers for fiscal year ended July 28, 2017.
Like Darden, Cracker Barrel is already into its fiscal 2018 calendar. The chain reported second quarter earnings in February, and came away with some promising financials. The chain carried over momentum from the first quarter with same-store sales growth of 1.1 percent, year-over-year. Retail sales were up 0.5 percent, which was a nice sign given the segment’s struggles in past quarters. Cracker Barrel also received a boost from tax reform in the form of a $1.64 per share benefit, which pushed GAAP diluted earnings per share to $3.79. Foot traffic was down 0.9 percent, year-over-year, but Cracker Barrel also reported a 2 percent lift in average check. Cracker Barrel has made wide improvements in its off-premise platform, including the launch of online ordering for large parties and individual to-go offerings. The latest report led Cracker Barrel to set full-year profit guidance higher than expected. The company is aiming for full year revenue of $3.1 billion as opposed to projections of $3.05 billion. Internal projected earnings per share indicate the brand’s confidence in 2018, too: the restaurant is expecting between $9.30 and $9.50 in earnings per share for the year, well above the consensus opinion of $9.11 per share.
Total Revenues (in thousands): $2,260,502
Average unit volume: $10.6M
Total restaurants: 214 (13 Grand Lux Cafes; and two under the RockSugar Southeast Asian Kitchen mark, transitioning from Rock Sugar Pan Asian Kitchen).
In Q4, The Cheesecake Factory reported same-store sales declines of 0.9 percent versus the prior-year period. It wasn’t so long ago any sort of decline seemed unheard of at the polished chain. Some of that can be credited to industry and mall retail headwinds, and some of it is simply measuring against a high standard, as you can see by those AUVs. Back in August, The Cheesecake Factory reported 0.5 percent comp declines, which represented its first negative gains after 29 positive quarters. The chain has hovered in that realm since. On Tuesday, it provided 2018 profit and same-store sales guidance at the Raymond James 39th Annual Institutional Investors Conference. It says it expects 2018 adjusted earnings per share of $2.64 to $2.80 and flat to positive 1 percent same-store sales growth. In a five-year outlook, the chain is targeting same-store sales growth of about 1–2 percent, and revenue growth of 6–7 percent, as well as revenue of about $3 billion and EPS of $4.50 by 2022. Perhaps most intriguing, Cheesecake also revealed during the Q4 call that it plans to launch a long-awaited fast casual later this year. The company is finalizing lease negotiations for a space in Los Angeles, it said. Could these scale around the country? If all works out, there’s no reason to bet against the idea.
Total revenues (in thousands): $2,219.531
Average unit volume: $4.973M
Total restaurants (including 20 Bubba’s 33s): 549
Texas Roadhouse had yet another impressive fiscal 2017. The chain’s performance didn’t move the stock market needle too much simply because its success has become a recurrent measure of its own consistency. Comps were up 5.8 percent in Q4 at company-operated units and 4.7 percent at domestic franchised ones. Texas Roadhouse also watched its guest count increase 3.6 percent for the year. In the fourth quarter, traffic was up 4.7 percent, year-over-year. Restaurant sales increased by 11.6 percent in 2017 compared to 2016 and increased 10.2 percent in 2016 compared to 2015. Let’s take a deeper dive into some of this consistency. Looking at the fiscal year that ended December 27, 2017 here are some number to crunch on: For five-year CAGR, totaled revenues grew 2.1 percent. Operating income was up 11 percent to $186.2M. Net income increased 13.1 percent to $131.5M. AUV rose 3.9 percent. In fact, across the board, from diluted earnings per share (13.1 percent) to average restaurant gross square feet (0.4 percent) to average sales per square foot (3.8 percent), there wasn’t a negative drop to be found. If Texas Roadhouse has a challenge ahead, it’s going to be on the labor front. Unlike many competitors, the steakhouse chain isn’t ready to pour its resources into off-premise. The brand, although it has invested in online ordering and to-go packaging, still wants guests to experience the four-wall presentation Texas Roadhouse has become famous for. In Q4, margin dollars grew 11.9 percent to $99.2 million from $82.4 million and margin, as a percentage of restaurant sales, decreased 11 basis points to 17 percent thanks mainly to labor inflation partially offset by lower food costs. While a challenge, expect Texas Roadhouse to keep rolling. The chain knows how to please its core guest, and that won’t change anytime soon. And as far as stressing that in-house experience goes, it seems like the right move for Texas Roadhouse. After all, you can’t order a date night can you?
Total revenues: $1.4B
Average unit volume: 2.835M
Total restaurants: 566
The most notable news to come out of Red Robin recently was its announcement that it would stop growing after 2018. On the surface, some investors took that as some kind of doomsday notice when it dropped. But there’s something to be said about this kind of foresight, which goes against the model seen by multi-unit chains all over the country a few years back: How do you grow sales? Put a restaurant in every corner of every market in every state. That is so far from reality in today’s flooded restaurant world that it’s forcing some of the impenetrable forces of foodservice to contract. Think Subway, a chain that ballooned to over 25,000 U.S. units and had to shutter 909 restaurants in 2017, according to reports. Red Robin’s goal here is to shore up its operating model and also to start thinking about what the full-service concept of the future really looks like. The chain opened a delivery-only test unit in downtown Chicago last November. If I had to guess, you might just see something similar hit the market in the future. As for recent results, Red Robin surged to a strong Q4 thanks to impressive off-premise growth. The chain’s same-store sales at company-operated units lifted 2.7 percent, year-over-year. If you combine carry out, third-party delivery, and catering, Red Robin saw a 45 percent increase in sales over the previous year, and recorded an 8.3 percent mix of sales in Q4 (compared to 5.7). That bodes well, especially considering about 240 Red Robin locations, or roughly half of the corporate stores, have one or more tablets and partners in delivery currently.
Total revenues: $1.105.1B
Average unit volume: $11.556M
Total restaurants: 101
Note: Numbers for fiscal year ended January 29, 2017.
Dave & Buster’s is approaching its fiscal 2017 and fourth-quarter report. In Q3, back in December, the chain reported same-store sales declines of 1.3 percent. In that review, D&B unveiled its plan to start opening smaller-format stores, starting in Rogers, Arkansas. These units are 15,000–20,000 square feet, with anticipate AUVs of $4–$5 million. The brand has been here before but never really with any tangible success. The last time, D&B just “took everything and proportionately shrunk it,” as CEO Steve King said. There was a special event space; a dining room; and the arcade dropped down to 5,500 square feet. It was like a miniature version of the traditional big-box space. The new restaurant, however, will feature an arcade that’s 10,000 square feet, or essentially the same size as the current restaurants. And instead of having a separate dining room and special events space, D&B will showcase a straight sports theme King called “D&B Sports.” This idea is a well-thought-out one based on some recent trends. For starters, the chain has seen plenty of success on the arcade side. Sales in amusements were up 1.1 percent in the previous quarter, while food and beverage fell 4.2 percent. So it makes sense to keep that arcade and fit the rest of the concept in. The company isn’t giving up on food, though. D&B said it is trying to reignite the momentum in its food and beverage business by improving product alignment and speed of service. The company also wants to “remove friction in the guest experience,” and, bolstered by strong new store returns, drive unit growth for the company in the long term.
Total revenues (in thousands): $1,031,782
Average unit volume: $5.4M
Total restaurants: 197
You can’t help but admire BJ’s outlook. CEO Greg Trojan said after its fourth-quarter review that it was on a “quest to be the best casual-dining concept ever.” BJ’s has definitely built some positive vibes in recent months. The chain reported same-store sales growth of 1.6 percent in Q4, year-over-year, which marked the first quarterly comparable-sales growth in seven quarters for BJ’s. The chain’s traffic was also up 0.7 percent. This traffic is becoming increasingly important as labor (35.8 percent of costs for the fourth quarter, up 90 basis points) cuts into the bottom line. Hourly wages rose about 5 percent quarter-over-quarter. In response, BJ’s earnings per share fell from 55 cents a year ago to 37 cents, the company said. They key to some of this growth was the appreciation of several initiatives that slowed sales a bit for the brand but are now shining through. Among them: Some form of delivery currently available in 149 of the chain’s restaurants, with another 23 scheduled to be added by the end of the first quarter. The company’s Brewhouse Specials, which run Monday through Thursday. Improvement to its Happy Hour. At the same time, a counterbalance strategy of premium offerings with the slow-roasted menu. In the second quarter, BJ’s completed the rollout of its slow-roasting ovens. These top-level items, which include Prime Rib, Bone-In Pork Chop, Baby Back Pork Ribs, and more, drive higher check average. The brand unveiled handheld point-of-sale devices as well to improve upselling and ease of service.
Total restaurants: 300
FAT Brands Inc., which currently owns Fatburger, Buffalo’s Café, Buffalo’s Express, and Ponderosa & Bonanza Steakhouses, is a company built for growth, president and CEO Andy Wiederhorn said following the company’s third-quarter review. FAT Brands completed its initial public offering in October and has been busy since. FAT Brands expects its Hurricane Grill & Wings acquisition to close later in the year. On November 14, the company entered into agreement to purchase Hurricane for $12.5M. FAT Brands also announced earlier in the month that it successfully completed the acquisition of Homestyle Dining LLC, the parent company to the Ponderosa Steakhouse and Bonanza Steakhouse brands, for $10.5 million. The two brands operate more than 120 locations across the U.S., Canada, Puerto Rico, the United Arab Emirates, Qatar, and Taiwan. The company said at the time that it plans to develop a smaller-scale Ponderosa and Bonanza concept to drive new store growth, specifically internationally, where demand for traditional American fare continues to grow. As for the established concepts, same-store sales grew 3.8 percent at Fatburger and 3.9 percent at Buffalo’s in Q3. The company was formed as a Delaware corporation March 21 as a wholly subsidiary of Fog Cutter Capital Group Inc. “This scalable platform generates significant efficiencies in franchise support services and corporate overhead. Pro forma for the Hurricanes acquisition and expected synergies, we expect annualized revenue to exceed $17 million, and annualized adjusted cash earnings of greater than $11 million, or $1.10 per share,” Wiederhorn said.