Mr. Buckley: The stocks are reflecting a strong fundamental earnings performance, which has been in place for several years. This performance is currently standing out even more strongly on a relative basis given the overall corporate profit performance. The underlying positive fundamental factors supporting the earnings performance are a relatively low rate of unit expansion throughout the industry and consistent demand growth. So companies are posting positive same-store sales, and that is helping to drive both margins and earnings.
TWST: Bryan, is there anything that you would add to this picture?
Mr. Elliott: Not really, except that I think the visibility of the
maintenance of those drivers is very, very high. Demand growth is being
driven by demographic and lifestyle factors that have been in place for
a while and that will continue. That includes increasingly busy lives '
fewer and fewer meals are eaten inside the home as we try to pack more
work and pleasure activities into our 24-hour days. In addition, as I
would peel the numbers, I think demand growth is very, very high in this
business. If you look at the retail sales composite in the restaurant
piece that comes out every month from the Department of Commerce, we've
seen very steady 5% demand growth for restaurant meals for some time
now. That has continued in the current economically weak environment.
The fast-food business is the largest piece of that, and that has
clearly been growing less than 5%. So the full-service business has been
growing probably 6% or 7%. On the high-end side of full service, it's
clearly cyclical and probably will be, at best, flat over the next nine
months or so. So the low to mid-tier, the 10-25 casual dining space,
has been seeing demand growth as high as 8%, 9% or even 10%. I think
that strength, in the face of the slight but meaningful pressures on
consumers over the last year or so, demonstrates the depth of that
demand. I am very confident that the supply side is going to stay very
constrained. I don't see any external capital falling into the business.
The larger public companies are buying back stock with their free cash
flow revenue, accelerating their growth. So I think we're going to
remain in this very good demand and modest supply growth mode for the
indefinite future.
Tickers included in this excerpt: AFCE, APPB, BUCA, CAKE, CBRL, CHUX, CPKI, DRI, EAT, MCD, OSI, PFCB, PNRA, RARE, RI, RYAN, SONC, SWRG, WEN, YUM
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