Core: Revenues for all restaurants fell year on year since much of 1Q20 was still pre-pandemic, with lockdowns occurring in the last two weeks of that quarter. JFC, on the other hand, was already feeling the effects of lockdowns at the time owing to its foreign activities. The good news is that COGS are decreasing faster than revenues, mitigating the effect of the sales downturn. On a quarterly basis, the revenue decline after the Christmas season was somewhat less than the average seasonal dip of 10% – 15%. Margins have also improved dramatically, notably for PIZZA and MAXS, as business cost measures begin to deliver cost savings.

After accounting for one-time expenses, PIZZA and MAXS both had good recurring earnings of Php29M and Php22M, respectively. Meanwhile, JFC would have had a greater recurring revenue without the effect of CREATE at Php203M, compared to a loss of Php1.8B last year. Overall, these figures are still a fraction of what the business saw before to the epidemic. For example, PIZZA has only had a 67 percent sales rebound from 1Q19 figures, but MAXS has had a 60 percent recovery. However, the steady increase in these data indicates the restaurant industry’s sluggish but steady revival.

Establishing the tone: All of this implies that the first quarter of 2021 has set the tone for the rest of the year, as we are now witnessing the full impact of the cost/business transformation measures undertaken by these corporations, who were significantly impacted by the epidemic. Although 1Q2021 may have been the worst quarter for these equities in 2021 as vaccinations ramp up and seasonality kicks in, we have already seen some setbacks (dine-in limits, decreased operation hours, and mobility limitations) with the viral rise in the later part of Q1 and the start of Q2, as well as vaccine delays. As we have consistently said in various businesses, particularly restaurants, the next robust recovery will be determined by how the COVID issue, including both virus spike and vaccination rollouts, is managed.

Following the pace: What we’re witnessing today, with a dine-in to takeout/delivery ratio of roughly 25:75, compared to a pre-pandemic ratio of 60:40, is most likely what we’ll see in the future. All of these businesses feel that dine-in will never return to pre-pandemic levels, as customer preferences have switched toward take-out and delivery with the development of food aggregators. When everything returns to normal, the change may not be as drastic (realistically about 40:60), but it should be enough to influence these corporations to make a transition that caters to this trend. This is exactly what we are witnessing today, as these restaurants have adapted to smaller multi-brand locations, consolidated and cloud kitchens, all of which lower expenses. This also underscores our belief that online buying and delivery have more opportunity to expand as businesses adjust to this new customer behavior/trend.

Wrap up: Is this the time to buy any of these restaurant stocks? Probably not, at least not for the time being. Restaurants will continue to confront increased commodity costs, decreasing discretionary spending owing to inflation and unemployment, competition from food aggregators, and delivery fees. We continue to expect that PIZZA would rebound the quickest given to greater margins and goods that are more suited for delivery, such as pizza. However, MAXS reporting better-than-expected earnings owing to cost-cutting strategies implemented in 2020 and high sales in its Yellow Cab and Krispy Kreme businesses is a surprise and something to keep an eye on. We are still underweight in the industry.


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