Dave and Busters 2Q17 Earnings Call Notes

Steve King

Reopened our stores in Houston

“I would like to express our deepest sympathy and concern for those affected by Hurricane Harvey. We want you to know that you are in our thoughts and prayers. We’re fortunate to have reopened our three stores in Houston last Friday and most of our employees are back at work.”

Hurricanes have been a tailwind historically

“I think the bigger issue quite honestly is that it’ll be more about how those communities are able to recover or whether people are going out and dining and going to entertainment plans and that sort of things, more so than it is kind of whether or not we’re prepared to handle the traffic. And I think just about everybody has said that each — one of these storms is unique. Houston is going to be, I believe unique in terms of house recovery at first. I would also say one last thing, over my career, hurricanes in the intermediate term have typically been a tailwind, but not in the short-term.”

Mentioned competitor main event and top golf

“We were probably a little bit surprised on the high side on how many units Main Event opened in the quarter. They opened five units, four of which were in our markets and two Topgolfs, both of which were in our market. So that headwind was a little more than I think we were expecting. It does look to us as that Main Event may be slowing down in the back half, but we don’t run those companies and it’s a little difficult to say. I do think from a cannibalization standpoint, we’re trying our best to think through kind of a good balance of new markets versus existing markets, so that we are not oversaturated with opening stores in existing markets. B”

Mall comps lower than system average

“mall stores represent about a third of our store base. And I think we’ve said it on couple of calls that have historically outperformed in terms of AUV and comp compared to the some average. However, after a pretty long period of outperformance, the first half of this year, mall comps were slightly lower than the system average. They’re still outperforming on a two-year and three-year stack basis. So, it’s little unclear to us whether this is just a tougher rollover or it’s something more substantive, but that’s what our data shows at this point.”

Big fights are not necessarily attractive economically

“First of all, Mayweather and McGregor greater happened in the third quarter. So, we are typically not commenting on that. But I’ll comment in general on that because we have seen a couple of those big kind of mega fights in the past. And I would say that in general, they are pretty expensive for us to put on in every store. And if they are happening in a timeframe where we are pretty busy anyway, so getting enough incremental to offset the cost is a pretty tough proposition for us. We remain committed to becoming and building awareness on our D&B sport. And so, we think it’s important for us to carry things like McGregor, Mayweather and how we covered in Mayweather, Pacquiao and all the rest of that. But it is hard on a Saturday night to be able to boost sales enough to make the economics of that overly attractive for us.”

Brian Jenkins

Increase in family mix leads to lower beverage comps

“And we think part of it is the family, I think question came up earlier. Part of that is driven by increase in family mix, which obviously has less penetration around alcoholic beverages and we think also food. That said, they are coming in to playing the games, games are driving — Amusement is still driving positive comps for us, but there is less propensity to buy food and bev. And it is — food and bev down across all day parts. So, it’s not just lunch and afternoon.

Jack in the Box 2Q17 Earnings Call Notes

Lenny Comma – Chairman and Chief Executive Officer

We are beginning to see some inflation

“after several quarters of lower commodity costs, we are beginning to see some inflation. We anticipate this will curtail some of the hypercompetitive discounting we have seen in recent quarters.”

Incremental lift from DoorDash partnership

“We have seen incremental lift in sales and markets served by DoorDash, which is delivering Jack in the Box food from approximately 37% of our system. We are also negotiating with other providers to expand delivery and have already begun tests with some of these vendors.”

Seeing worse performance at lower price points

“Yes. So if you look at the traffic below the $5 price point is negative. And when you look at the traffic above the $5 price point it’s essentially flat. So yes, we are seeing a much healthier business above the $5 price point and it becomes very obvious to that all the pressure is on the bottom side of the menu. In addition to that we also see the brands with positive same-store sales are starting to see margin pressures.”

The consumer is redefining convenience and we are in the convenience business

“The consumer is really redefining convenience and we are in the convenience business. So we are going to need to do some things to respond to that which we have already either done or at least begun to test. The consumer is also demanding lower price points in the current – in the current environment. So we need to do some things to respond to that. And then long-term, we just think that our brand is going to lose its relevance, if we don’t remodel our sites and improve our service that leads to this place where it’s sort of frictionless, which is again becoming sort of one of the redefinitions of service going forward. So I think, we need to actually invest in all of those things, not just value.”

Yum China 2Q17 Earnings Call Notes

Micky Pant

Same store sales +3%

“Our second quarter results continue to illustrate strong performance of Yum China with overall same-store sales growth up plus 3% and systems sales up plus 7% before foreign exchange translation. KFC delivered strong performance with same-store sales up plus 4% and Pizza Hut same-store sales were flat with a year ago. Operating profit increased sharply plus 64% to $143 million primarily aided by the benefit of retail tax reform and same-store sales leverage. On a fully diluted basis our EPS was $0.27 up 29% year-on-year.”

Dining experience changing very rapidly

“in-store is also mobile and that the actual the experience is changing very rapidly at mobile. If you now come to China and visit a KFC you will be surprised of the number of people not standing in line but actually ordering on their phone just like you would at an airport where you check in at a machine. And also Alipay, WeChat have been very good at expanding their networks and promoting it well. As a result of that we believe China is far ahead of anybody else in terms of mobile payment. Obviously, when you pay through mobile you capture data, there is all that convenience. So the delivery has always been significantly mobile led but now large part of their retail dining experience is also going through mobile so exactly on the margin.”

Jacky Lo

7% wage inflation

“There were several factors that impact our second quarter financial results that will probably continue through the rest of the year. First, is restaurant labor inflation. Our wage inflation was 7% and commodity inflation was 4% during the second quarter. While wage inflation is an inevitable challenge in the restaurant business, we will continue to find better ways to schedule our crew and streamline operating efficiencies and processes. As for commodity inflation, we expect the rate to moderate through the balance of the year and we are maintaining our guidance of low single digit inflation for the full year.”

Darden FY 4Q17 Earnings Call Notes

Gene Lee – Chief Executive Officer

Simplification has helped improve execution

“Don’t underestimate how simplifying our business has helped us improve execution. When we look at both Olive Garden and LongHorn where they were three years ago operationally to where we are today, these businesses are much simpler on a trajectory to continue to get even more simple. And we believe that’s the key to our guest count growth is better execution through simplicity.”

There’s still pockets of strength and pockets of weakness

“I would say a couple of comments on the industry. I still say there is pockets that there’s some real strength, there is some pockets where there is some weakness. We’re still seeing an upscale where we used in. You’re seeing real weakness in New York City, which has had a little bit of impact on capital growth. But overall, I haven’t seen a whole lot of change in the competitive landscape. The consumer in our view is not as reactionary to short term incentives, they come in and eat. They’re looking for everyday value, and that’s something that we continue to promote.”

Continues to be labor inflation

“Labor, we continue to see some pretty good inflationary pressure. We’re thrilled that we’re able to think or actually improve our retention rates right now; our team members are staying with us; they’re engaged, but there is some inflation; there’s 3% to 4% wage inflation in our labor number, right now; we’re able to offset some of that with productivity enhancements. But labor continues to be something that we’re focused on.”

The only way Amazon is in our world is through prime delivery

“And lastly, the question on Amazon, the only way Amazon’s in our world right now is through Amazon Prime delivery; we have a test going with them; we’ll continue to partner with them and see if we can make that work; we constantly sit around here thinking about how does Amazon have an impact on our business. Our research tells us that guests still want to come to restaurants. Believe it or not, millennials still want to come to restaurants. I know you all don’t think millennials go to casual dining restaurants, but 30% of all of our guests are millennials versus the 24% — they’re 24% of the population, so we over index. ”

Rick Cardenas

Strategy is to grow price below inflation and take share

“One of the things is we are going to be pricing below our inflationary impacts. And so we’re doing this for the long run. As Gene mentioned, we’re going to leverage Darden’s advantages, leverage Darden’s scale the price below, inflation in our competition to grow market share overtime”

Dave and Busters 1Q17 Earnings Call Notes

Stephen King

We’re seeing a lot of real estate from retailers who are closing stores, but more often than not they are located places we don’t want to go

“So we pick the trade area that we want to go to first and we can try to narrow it down to a relatively narrow target within the trade area and then optimize for whatever the best real estate deal is within that trade area. I think that we are continuing to see a lot of flow in terms of things that are being shown to us, if you will, from the fact that Sears, Macy’s, JCPenney, Sports Authority, all these guys are putting space, if you will, on the market. But they don’t always lineup with where we want to go. And more often than not, where they want to – or where they have availability is where specifically we don’t want to go.

Starbucks FY 2Q17 Earnings Call Notes

Kevin R. Johnson – Starbucks Corp.

Retailers are dropping fast

“Thank you, Tom. Welcome, everyone. Before getting into Starbucks’ Q2 results, I thought I’d comment on a recent Wall Street Journal article noting that more retail stores have closed in the first quarter of calendar year 2017 than closed in all of 2016. And that more retail stores are expected to close in the U.S. this year than closed in any year during the Great Recession that began in 2008. The article illuminated once again the seismic shift in consumer behavior underway and the devastating impact that this sea change in behavior is having on many traditional brick and mortar retailers. Articles like this prompt three very important questions that I’ve repeatedly asked myself over the years and that I suppose many of you on today’s call have asked as well.”

Merge digital engagement with emotional connection

“The critical transformative components required for any brick and mortar retailer to survive, let alone succeed in the future are an engaging, digital and mobile relationship with customers that is threaded into a branded, immersive, experiential retail destination. The attributes of the destination will vary. They may include theater, intrigue, or romance. But the common denominator will be the creation of a consumer experience that evokes human emotion and connection. I firmly believe that these are the ingredients that will determine which brick and mortar retailers thrive in the future, and which become victims of the current trend.”

Howard S. Schultz – Starbucks Corp.

Competition is a non-event for us

“I would say a few things. First of all, there’s no evidence whatsoever that any national company, even those companies that are discounting coffee significantly, with McDonald’s nationally or Dunkin’ Donuts in New England, what Panera is trying to do, there’s no evidence whatsoever that we have, that there is anything that they are doing that is affecting us adversely. So I just want to get that off the table. The competitive issues question is just a nonevent for us.”

Darden FY 3Q17 Earnings Call Notes

Gene Lee – President and CEO

Unit economics of a new acquisition

“Next, the restaurant level economics are very attractive. Cheddar’s has average restaurant volumes of 4.4 million, average restaurant guest counts of approximately 6,300 guests per week and an average check of approximately $13.50, all of which helps provide a strong return on investment and with only 165 restaurants today, the significant runway for growth.”

Darden platform should give a boost

“And so, having Cheddar’s being able to plug into the resources that — and capabilities that we’ve developed with data and insights should be a big advantage for them. It’s going to take us some time to be able to get them into our systems, but that we think about the Darden platform and plugging brands into it, we think that gives — that enables these brands to have a significant advantage in the marketplace.”\

Consumer pretty steady

“I would say if you look at our industry benchmarks, for the first couple weeks of March, the delay in the tax refunds was an impact in February and we’ve seen a few, a little bit better trends in the beginning of March. We’re also in March dealing with a much later Easter this year than we had last year. So just a lot of noise.

When I think about the consumer, I think the consumer has been pretty steady. We know the consumer is looking for everyday value. The consumer is not reacting to promotional value constructs, the way they did a few years ago and I think that when you give the consumer what it is that they want, they’re visiting restaurants.”

Keys to successful acquisition

“We think we give them a great scale advantage. We think the data and insights work that we’re doing, we think we help them with their strategic planning and we’ve got an umbrella that enables them to have unique operating cultures inside the brands and yet have these industry-leading retention numbers.

And so as long as we’re organized appropriately and we stay decentralized and have great presidents run their businesses, managing the portfolio is really just a management challenge and we got to keep the center small and so that we don’t burden the brands but we help the brands compete more effectively in the marketplace and I believe every one of our brands goes to market today with a significant advantage.”

Harder and harder to find locations to open olive garden

“the opportunity to open Olive Garden is not as plentiful as the opportunity to open Cheddar’s and we’ve got — we’re not fully penetrated with Olive Garden, but we’re getting closer and closer and it’s getting harder and harder to find locations where it would be — we could get that return because of cannibalization and other factors.”

Rick Cardenas

Inflation

“Restaurant labor was favorable, driven by lower manager incentive pay, given last year’s strong performance in the third quarter. This was partially offset by continued hourly wage rate inflation pressure. Restaurant expenses were unfavorable due to higher than anticipated utilities inflation, particularly natural gas, increased preopening related to more second ever openings this year than last, increased credit card fees and Worker’s Compensation and public liability claims.”

Do see some commodities inflation

“Hey John, it’s Rick. Yes, we did say commodities are expected to be up, buy up ever so slightly in the fourth quarter. Eventually this is going to turn. So, we’re not going to talk about ’18 yet, but we do see commodities slight inflation this quarter and what we talk about in our presentation, we’re about 80% covered. So, we’re, pretty covered for the rest of the year and including 80% in beef. So, we feel pretty good about where our numbers for the rest of this year and we’ll talk about ’18 in ’18.”

Dave and Buster’s 4Q16 Earnings Call Notes

Brian Jenkins

Getting a little bit of moderation in wage rate

“We do anticipate labor to move to the negative side next year. So it’s a pressure point to our P&L moving into 2017, largely on the heels of wage rate. That said, we expect wage rates to moderate a little bit, we were near 5% this year for the full year, California, New York, are the two states that we expect to have less pressure in, because we’re not seeing the same kind of minimum wage increase. New York had a 50% increase last year and California right about half as much as last year. So we’re getting a little bit of moderation on the wage rate in our view. But we still think it’s going to be a pressure point above what we’ve seen in the history of this company, so it’s going to be a pressure point.”

Any regional differences mainly from weather

“First of all, there are regional differences. Most of the regional differences tend to get driven for us at this point by. Weather, although I think we called out on our last call that the ones that were not particularly subject to weather like California and Florida were doing well for us. More specifically than that, we haven’t had a lot — Texas was very close to the average in the third quarter, it fell off quite a bit actually in the fourth quarter and was a negative for the quarter.”

Chipotle 4Q16 Earnings Call Notes

Steve Ells

John Hartung

Haven’t had a price increase in 3 years but at some point will need to do that

“Now there are pieces of that, that we’ve been absorbing; for example, inflation. We’ve not had a price increase in three years. We’re not planning any specific price increase right now. But at some point over time, we’ll need to pass on some of the higher costs. But we believe we’ll be able to do that. And then that along with leverage from the higher sales, that along with better negotiation, that along with better management at the restaurant level and holding the line on the P&L, on individual P&L line item. We still think we have the ability to recapture the high 20% margin range. The most important factor, though, year-by-year, is sales, how much we can build in terms of sales.”

Food and labor inflation without price increases

“Since 2012, we’ve had labor inflation totaling about 20%. We have only taken about 5% of a menu price increase in that time, and so we’ve eaten a couple hundred basis points worth of labor inflation, at least, maybe even more. And so the food cost is higher because of things like, we’ve had inflation at steak, we’ve invested in Food With Integrity, things like that, And because we are a little bit behind right now menu pricing, I would say our food is at an elevated level, we’ve been eating some of the higher food costs over time, same thing with the labor.”

Mark Crumpacker

Changed real estate strategy in new locations

“with regard to the new restaurants, they’re performing right now at about 74% of our regular restaurants, which is an improvement, it got as low as 70% during the crisis, and we do see that the stores that we market are performing better. So now all new restaurants receive marketing at their opening. The other change that we’ve made with regard to new stores is the way we’re choosing real estate, particularly in developing markets. As you know, we have our, or you may know, our real estate markets are categorized into four different categories, knew, proven, established, and developing. And in developing markets, we’ve reverted to choosing only Tier 1 sites, which we expect will have an ongoing effect on improving the ADS (33:21) in those restaurants.”

McDonald’s 4Q16 Earnings Call Notes

Steve Easterbrook

Strong results in China

“Let’s turn to the High Growth segment, where performance was driven by strong results in China. We saw increases in comparable sales in the fourth quarter across all markets, resulting in a positive comp of 4.7% for the segments. For the full year, comparable sales were 2.8%. Notably, China had a strong quarter with comparable sales of 7.9%. We ended the year with solid momentum, due in part to contributions from the core menu and the strong value offerings.”

Last year’s Q1 results included a leap day

“, we are dealing with varying macroeconomic pressures and general economic volatility in many markets, including Russia and France. In Q1, well, results have included a leap day, favorable weather in many places around the world and a continued benefit from the launch of All Day Breakfast in the U.S. ”

Probably going to bring pricing back carefully

“It is a delicate balance, 2016 was a – there was a lovely cycle from the cash flow with commodities at an all-time low and probably as aggressive as we would be want to be on pricing. I think we are going to bring – you will see us just bring just carefully bring pricing back more in line with food away from home, which we begin to see now.”

We’ve got to simplify

“Yes. No. Thank you. Thanks David. Speed of service has declined slightly, it’s handful of seconds slower by the end of ‘16 and we were by the end of ‘15. So I guess there is a number of things we are trying to do. You will hear me talk about or heard me referring the thoughts around net simplification where if we are going to introduce new menu items, new ideas, we got to reduce the complexity by at least, if not more than the same amount. So our operations teams, particularly in the U.S. are deeply focused on that and just simplification isn’t just on the menu, it could be on different operational processes.”

Kevin Ozan

Food deflation will probably not be as favorable as it was in 2016

“Hey, Nicole. Thanks for the question. Yes, we do expect kind of the food at home, I’ll call it deflation to ease or not be as favorable as it was in 2016. The IEO industry is still projected to be relatively muted in 2017. But I think what it does is, as you know, we look at various factors when we look at pricing. We will look at food-away-from-home inflation and food-at-home inflation and competitors to determine the right kind of approach to our pricing. I think it gives us an opportunity to potentially gain some customers back that are right now eating at home.”