- New products and promotions are major factors in same-store sales being up so much in the second quarter.
- The burger segment is slated to hit is highest same-store sales growth since first quarter 2016.
- In the pizza category, the picture is less bright due to rising cheese prices.
Things could be looking up for the restaurant industry, especially for fast-food chains.
New products and promotions helped boost same-store sales growth so far in the second quarter, according to Wall Street analysts.
"About two-thirds of the way through the second quarter, U.S. chain quick-service restaurant same-store sales appear to have improved by about 30 to 50 basis points sequentially from those of the first quarter as a whole," Mark Kalinowski, a Nomura-Instinet analyst, wrote in a research note Monday.
In May alone, Baird analyst David Tarantino said, same-store sales grew more than the 1.3 percent growth seen in the first quarter and slightly more than the 1.5 percent growth in March and April.
Kalinowski said the burger segment, in particular, is expected to hit is highest same-store sales growth since first quarter 2016.
Value promotions and innovative menu items have been a boon for these chains. McDonald's, in particular, will likely see same-store sales growth in the U.S. of 2.2 percent because of its new Signature Craft Recipes and the "$1 any size soft drink" promotion, Kalinowski said.
Kalinowski also forecasts that Wendy's will see same-store sales growth in North America hit 3 percent, aided by its Fresh Mozzarella Chicken Sandwich and its Baconator promotions.
However, he said the burger segment is lapping easy comparisons this quarter because same-store sales a year ago were weaker than analysts had expected.
For the fast-food "other" segment, which Kalinowski defines as all fast-food excluding burger, sandwich and pizza concepts, same-store sales are about the same as they were in the first quarter.
"While this may not be all that exciting on the face of it, it could imply a solid quarter for the Taco Bell and KFC concepts owned by Yum Brands," he said.
Kalinowski said that Taco Bell's Naked Chicken Chips promotion could bump Taco Bell's domestic same-store sales up 3 percent for the quarter. Similarly, product innovation at KFC, like its new Zinger chicken sandwich, could result in a 2 percent rise in same-store sales for the chicken chain.
In the pizza category, restaurants are facing rising cheese prices. According to Peter Saleh, a BTIG analyst, cheese prices are up 25 percent since mid-March and are likely to remain at this level for the rest of the year.
"We believe rising cheese prices leads to more rational promotions across the category, similar to what the industry experienced in the summer and fall last year, and expect this dynamic will occur again in the coming months," Saleh wrote in a research note Monday. "We believe a lessening of promotional intensity will lead to relatively stronger same-store sales for concepts that have more premium positioning such as Papa John's."
Saleh said chains like Domino's and Pizza Hut, which rely more heavily on promotions, will see weaker same-store sales than o Papa John's.
"We are reassured by some preliminary signs that year-over-year demand trends may be improving modestly as the industry cycles some of the headwinds that we think dampened demand during most of 2016," Tarantino wrote in a research note Monday.
The restaurant industry struggled with weak sales and traffic throughout 2016, coming to a head in December when same-store sales growth was the worst of the year.
In January, analysts at the NPD Group expected quick-service chains to see traffic grow by about 1 percent, while visits to full-service chains are anticipated to fall 2 percent.
Similarly, Technomic analysts expected that sales at full-service restaurants would grow about 3.5 percent for 2016 and 2017. Adjusted for inflation, the real growth was estimated to be about 0.8 percent.