Restaurant Finance Monitor Stock Index Rebalance Tells a Mixed Story


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Restaurant Finance Monitor Stock Index Rebalance Tells a Mixed Story

The Restaurant Finance Monitor INDXX Index requires a deep analysis of the publicly traded restaurant companies and an understanding of the execution risk in their various business models. Our analysis led us to skew the index 70% towards QSR and 30% to casual and fine dining. Equally important as the mix, was the need to manage risk through a quarterly rebalancing process, which sidelines six companies each quarter.  

In the latest rebalancing, which took place on March 31 the index underwent a number of significant changes.

Six companies were sidelined: Bojangles (BOJA), Cheesecake Factory (CAKE), Papa John’s International (PZZA), Dave & Buster’s (PLAY), Red Robin (RRGB) and EL Pollo Loco (LOCO).  Industry experts will understand these brands are in the process of reestablishing momentum.

Five companies were added back into the index: Chipotle (CMG), BJ’s Restaurants (BJRI), Fiesta Restaurant Group (FRGI) Del Taco (TACO) and Del Frisco's (DFRG).

Restaurant Finance Monitor Stock INDXX Top Holdings
(March 29, 2018)
Companies Symbol Index %
McDonald's Corp. MCD 4.75%
Starbucks Corp.  SBUX 4.75%
Yum! Brands YUM 4.75%
Yum China Holdings YUMC 4.75%
Restaurant Brands Intl QSR 4.75%
Domino's Pizza DPZ 3.56%
Chipotle Mexican Grill  CMG 3.56%
Dunkin' Brands Group DNKN 3.56%
The Wendy's Co. WEN 3.56%
Jack in the Box JACK 3.56%
Arcos Dorados Holdings ARCO 3.56%
Shake Shack SHAK 3.56%
Wingstop WING 3.56%
Sonic Corp. SONC 3.56%

Overall, the index leadership highlights how intense the battle is for market share. Size does matter in the restaurant industry, especially for the top 14 publicly traded QSR companies listed on the adjacent table. These brands, which represent about 52% of the index ownership, benefit from the scalability of an asset light model. 

The index was down .87% in the recent quarter ended March 31. For the past 12 months, it was up about 1%. These are disappointing returns for the restaurant industry, especially considering the results for the
past five, ten and 10 year periods were 14.9%, 16.8% and 15.8%, respectively.

Most of the leaders in the index achieved expansion growth and maximized return on invested capital in an asset light business model. During the next phase of growth, the question will be whether these same companies can achieve operating leverage through effective use of technology and target marketing. Ultimately, this next stage of growth highlights a new set of risks. It is therefore no coincidence that the new leadership in companies like Starbucks, Restaurant Brands and Domino’s have extensive technology backgrounds.

About the Index 

The Restaurant Finance Monitor INDXX Index follows a strict rules based methodology that weights QSR
and Fast Casual at 70% with full-service making up the balance. As a window into the economy, the Index tells an unbiased story about a group of restaurant stocks whose success reflect the need to grow globally and through delivery. The index speaks to the execution challenges within the industry and the need to define a service offering according to dynamic customer needs. Unique to the index is the fact that it rebalances quarterly to sideline six weaker players and highlight those companies who are winning the game. No one brand represents more than 5% of the index and holds over 29 names and represents over 35 brands.

The index was founded by Dan Weiskopf through Access ETF Solutions LLC as a result of his interest and research in the restaurant and Exchange Traded Funds  (ETF) industries. For more information about the index, contact Dan Weiskopf at DanW@investment-planners.com.

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