Key insights
- Restaurant traffic in the US weakened in May, with quick-service, burger, and chicken segments seeing notable declines. While higher check sizes are boosting same-store sales, this is driven by price increases rather than volume, indicating potential consumer pullback. Lamb Weston faces international challenges and declining traffic, though domestic growth is expected. This suggests a cautious outlook for consumer discretionary spending, potentially impacting related equities.
Investing.com -- Restaurant foot traffic in the United States weakened further in May, according to data from Placer cited by Jefferies analyst Andy Barish.
Quick-service restaurant traffic fell about 250 basis points sequentially compared to April. Burger restaurants declined about 200 basis points, while chicken restaurants dropped about 520 basis points. Pizza traffic remained roughly flat, up 25 basis points.
Industry same-store sales increased 30 basis points month-over-month to 1.8% in May. The gain was driven by higher check sizes, up 70 basis points, which partially offset a 30-basis-point decline in traffic.
For Lamb Weston, fourth-quarter weighted traffic declined about 396 basis points compared to the third quarter. The company previously reported that quick-service restaurant traffic in North America grew about 1% in the third quarter, the first increase since late fiscal year 2024.
Jefferies expects Lamb Weston's implied traffic to be down in the low single digits year-over-year in the fourth quarter. The firm still forecasts solid North America volume growth in the quarter, supported by customer wins, retention, and an extra week of sales.
International markets remain challenging for Lamb Weston, particularly in Europe. The company responded by curtailing a production line in the Netherlands at the start of the fourth quarter and recently announced a facility closure. The Middle East conflict poses additional volume risk, as the region represents a high single-digit percentage of international segment volume.
For Mizkan America, fourth-quarter traffic through April and May declined about 221 basis points compared to the third quarter. Chick-fil-A traffic fell about 508 basis points versus the third quarter, while YUM brands softened about 219 basis points.
Jefferies maintained a buy rating on Lamb Weston with a $55 price target based on about 10 times its 24-month forward EBITDA.