Food Service Distributors To Face Sales Struggle Ahead, Warns Morgan Stanley Analyst

  • Morgan Stanley analyst Brian Harbour said for the restaurants and food service distributors, Q1 may be the last rising tide quarter driven by both good economic data and easier laps to start the period.
  • The analyst said the focus will shift to more idiosyncratic drivers of sales, signs of price resistance, promotions and product or marketing drivers.
  • Restaurant CPI continues to tick up in fact, though the analyst believes some brands will begin to roll pricing off.
  • Grocery pricing, the analyst noted, responds more rapidly to food PPI and should continue to roll off, with debate about whether it could even become deflationary or subject to greater discounting.
  • The analyst will look forward to questions about how financing could impact store openings, given recent stress in the banking system.
  • Feb/March should show the impact of a strong China recovery as intra-quarter comments from other companies have suggested, said the analyst.
  • The analyst thinks there are increasing investor questions about elevated leverage, even if most companies under the analyst’s coverage don’t have much refinancing risk and cash flow can support leverage for now.
  • The analyst thinks expectations have risen for McDonald’s Corp MCDChipotle Mexican Grill Inc CMGStarbucks Corp SBUXTexas Roadhouse Inc TXRHWingstop Inc WING and Krispy Kreme Inc DNUT.
  • The analyst expects strong U.S. results for Starbucks and thinks the past concerns about traffic for Chipotle have eased faster than expected.
  • For Domino’s, the analyst sees 1Q fundamentals to be good enough for now, but a broader strategic refresh is still needed to drive new investor engagement, and not likely until the latter part of the year.
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