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Graham Griffin
Graham Griffin
Articles (65) 

Stagnant Restaurant Transactions Accelerate Closures

Struggling sales send hundreds of locations to the chopping block

As restaurants continue to struggle amidst the pandemic, giants like McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX) and Dunkin’ Brands (NASDAQ:DNKN) have announced the planned closure of hundreds of locations across the United States.

According to a report by CNBC, restaurant transactions have plateaued in recent weeks without returning to expected levels. Quick-service restaurants, such as fast-food chains, have seen their transactions hovering 10% lower than seen the year prior. Full-service restaurant chains have been hit even harder, with transactions settling 20% lower year over year.

The continuing slump in sales has prompted these companies to shutter struggling locations and end certain partnerships. Drive-through operations have helped to maintain limited profitability as many companies seek out new service formats like curbside pickup.

McDonald’s

On Tuesday, McDonald’s announced an accelerated plan to shut down 200 locations across the country in what they called low-volume restaurants. According to USA Today, over half of the planned closures will occur in Walmart (NYSE:WMT) stores.

The closures were already planned for future years, but are being expedited as the impact of the pandemic on sales continues globally, according to officials.

On July 30, McDonald’s was trading at $196.05 per share with a market cap of $145.48 billion. According to the Peter Lynch chart, the company has been trading above its intrinsic value since 2015.

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GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. Recent years have seen increased debt, yet the company maintains an operating margin of 37.73% that is higher than 98.17% of the industry.

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Starbucks

Back in June, Starbucks announced the planned closure of 400 company locations over the next 18 months. They claimed changing consumer behaviors as the primary reason for the decision.

While the company is shuttering doors on struggling locations, they are still planning on opening an additional 300 stores during the current fiscal year in expanding markets. These stores are slated to feature convenience-led enhancements like curbside pickup and walk up windows in certain locations.

As of July 30, Starbucks was trading at $76.44 per share with a market cap of $89.36 billion. The Peter Lynch chart shows the company had been trading a little above intrinsic value prior to June.

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GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 3 out of 10. The company is currently maintaining operating and net margin percentages that beat the majority of the industry. The return on invested capital significantly outweighs the weighted average cost of capital and suggests positive excess returns moving toward the future.

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Dunkin’ Brands

Dunkin’ announced the largest number of closures out of the three as the company plans to exit their partnership with Speedway gas stations. The 450 closures were originally announced in February and were confirmed by the company at the beginning of July.

The majority of the locations selected for closure are based on the east coast and Dunkin’ believes that the exit will allow it to be better positioned for its new restaurants and menus.

July 30 saw Dunkin’ trading at $68.97 per share with a market cap of $5.66 billion. The company is trading above its intrinsic value according to the Peter Lynch chart.

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GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 8 out of 10. Four severe warning signs have been issued, including poor financial strength. The company has continued to issue increased levels of debt in recent years and an Altman Z-Score of 1.2 places it into the distress column.

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Disclaimer: Author owns no stocks mentioned.

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