For Immediate Release

Chicago, IL – September 22, 2014 – Today, Zacks Equity Research discusses the Restaurants, including Burger King Worldwide, Inc. (BKW-Free Report), Jamba, Inc. (JMBA-Free Report), Domino's Pizza, Inc. (DPZ-Free Report), Yum! Brands, Inc. (YUM-Free Report) and Wendy's Company (WEN-Free Report).

Industry: Restaurants

Link: http://www.zacks.com/commentary/34490/us-restaurants-slog-through-a-weak-industry

The U.S. restaurant industry has been a little under the weather since the beginning of 2014. Increasing food costs, weak consumer spending environment and a few political and general issues have kept the industry under pressure so far. Restaurant Performance Index (RPI) -- a health and outlook measure for the industry -- was 101.0 in July, marking the second consecutive monthly decline.

Despite positive same-store sales and traffic trends, RPI declined on a mixed outlook for the rest of the year as provided by the restaurant operators. Also, the continuous rise in food costs poses a threat to the industry. According to the Bureau of Labor Statistics, average wholesale food prices were up 7.1% in Jul 2014 and registered sharp gains in six of the first seven months of 2014. In fact, food prices are set to register their highest annual increase in three years.

However, despite the challenges, the underlying fundamentals point toward an improving business environment in the months ahead. Restaurant industry sales trended in a positive direction during the first half of 2014. Per the U.S. Census Bureau data, total eating and drinking place sales were up 6.2% in July on a seasonally-adjusted basis. However, consumers are relatively less optimistic about the outlook in the near-term.

Nevertheless, per National Restaurant Association, restaurant-and-foodservice sales will be $683.4 billion in 2014, up 3.6% year over year driven by innate fundamental strengths, which reflects an improving economic backdrop. Moreover, consumer confidence index has reached its highest level in around seven years.

OPPORTUNITIES

Domestic and International Unit Expansion: Amid a sluggish economy, most of the companies have stepped up their pace of restaurant openings. Not content with domestic expansion alone, the companies are looking to test waters as well as developing taste buds in foreign shores. Restaurateurs are primarily concentrating on emerging markets that provide ample opportunities for expansion.

The burgeoning middle income population in emerging countries encourages these companies to shift their spotlight from the somewhat saturated domestic market. Burger King Worldwide, Inc. (BKW-Free Report), Jamba, Inc. (JMBA-Free Report) and Domino's Pizza, Inc. (DPZ-Free Report) have been quite active on this front.

Refranchising, Revamping & Innovating Menus to Impress Guests – A Common Trend: Though refranchising was common in the restaurant sector, it has received a boost lately given the benefits of this business model even in an anemic economy. The franchise-centric model helps to reduce volatility in earnings and enhances cash flow generation. Companies like Yum! Brands, Inc. (YUM-Free Report) and The Wendy's Company (WEN-Free Report) are examples of highly franchised brands.

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