EquityResearch9May2019COREBarclaysCapitalInc.and/oroneofitsaffiliatesdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.PLEASESEEANALYSTCERTIFICATION(S)ANDIMPORTANTDISCLOSURESBEGINNINGONPAGE18.Restricted-InternalU.S.Restaurants‘State’oftheConsumer&Exposureby‘State'…BewareoftheLargestStatesThe'state'(akahealth)oftheUSconsumerisseeminglystrong.Buthealthvariesmeaningfullyby'state'(akageography).Inthisnote,weanalyzeconsumermetricsbystateandthencomparetorestaurantexposurebystate.Ultimately,weareanalyzingthehealthoftheconsumer.Ametricsuchashigherwagesisgoodforcomps,albeitbadforcosts.Importantly,withconfidencenearhighs,unemploymentattroughs,andthebenefitsfromconsumertaxreformflowingthrough,tailwindsarelarge.And2018–2019YTDindustrycompsare‘healthy’relativetodisappointmentexperiencedthepriortwoyears.Surprisingly,ofstatesmostheavilypenetratedbyourrestaurants(CA,TX,FL&NY),allexperiencedadeclineinrelativestrength,ledbyFlorida.Suchsupportsourmorecautiousoutlookforcompsthroughthebackof2019.Ofourcoverage,DNKN&TXRHhavethestrongestrelativenetexposure,whileBJRI&JACKtheweakest.AndrestaurantswithbroadUSpenetrationarelessvulnerabletoregionaltrends.‘State’oftheConsumer:Weanalyzedthey-ychangeinconsumermetricsbystate(i.e.,unemployment,wage,income,gasprices,homeprices,bankruptcyfilings)inanefforttogaugethehealthoftheconsumer.Delaware,Utah&W.Virginiaarestrongest,whileHawaii,DC&Oklahomamostchallenged.Ofstateswithoutsizedrestaurantexposure(5%+ofunits),TXisthestrongest(yetweakery-y),whileFLisweakest.Andbyregion,theMidwest&Westarestrongest,whiletheSouth&Northeastareweakest.RestaurantExposurebyState(&Region):Weanalyzedtheexposurebystatefor30+publicrestaurants.Ofourcoverage,thosewiththemostfavorablenetexposure(differencebetweenthe10strongest&10weakeststates)areDNKN(+5%)&TXRH(-5%),...
