Can Toast Thrive in the Restaurant Renaissance?

What's particularly noteworthy is In this podcast, Motley Fool analysts Tim Beyers and Rick Munarriz discuss: Surprisingly good data from the Restaurant Performance Index

The metrics that matter when in the restaurant sector (quite telling)

The future of Toast -- the company, not the food

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Meanwhile, A full transcript is below (this bears monitoring)

Tim Beyers: Are restaurants rising

You're listening to Motley Fool Money

Nevertheless, I'm Tim Beyers, senior analyst at Motley Fool Rule Breakers, with me, one of my teammates here, Rick Munarriz, Rick, we need to talk restaurants because you are the original TMF edible

I know that you haven't carried that name for years, but if I want to talk restaurants, I want to talk to you, and we need to talk restaurants today, Rick, and I'm going to hit you with a lead line that I really want you to dig into

Market analysis shows Restaurant Performance Index, which is something that tracks overall at restaurants

However, But this is interesting, Rick

Additionally, This analysis suggests that 's the third consecutive month of increases

On the other hand, What do you make of this, considering recent developments

We've had weird economic numbers, and yet restaurants are on the rise, amid market uncertainty

Rick Munarriz,: Yeah, again, it's that unexpected and refreshingly surprising because the year started off pretty rough

Sweetgreen posted their first quarter as a public company with negative caps

We've had companies Starbucks have had five consecutive quarters of negative comps, Applebee's iHOP, Papa John's Pizza, KFC, all these chains have had at least a year of quarterly negative comps

In contrast, It's been a rough time for restaurants, and then you see this, and it's not just that it was three quarters of positive restaurant performance index, is that it actually clocked in over 100 for the index which basically signifies expansion, which is actually what you want, not just to bounce but expansion, again, it's a matter of will it stick, and that's the biggest thing because even in the whole story that National Restaurant Association put out discussing it, even the restaurant owners said, Hey, only a third of them are optimistic that six months from now, it's going to be this strong

But again, they're the ones that got it wrong in the first place, thinking, this would be a longed downturn

This analysis suggests that consumers have the final say, and they're hungry and they're coming back

Tim Beyers: They're eating and they're eating more (noteworthy indeed) (which is quite significant)

Additionally, Nevertheless, Ticker Trends has some data on this, and we are going to talk Toast a little bit later, in light of current trends

We're going to have a dueling fools on this, in today's market environment

Please stay tuned, in today's financial world

Meanwhile, We've got a chock-full episode for you, given the current landscape

Moreover, Furthermore, But let's talk the Ticker Trends data here, Rick

The increases in daily average users of Toast Mobile app was up significantly, in this volatile climate

Here's the question I have for you

Should we consider Toast to Bellwether for restaurants

Because we are going to be debating that, given the current landscape

In contrast, What do you think, in this volatile climate

However, At the same time, Rick Munarriz,: I think Toast tends to overstate the restaurant industry because they're growing so quickly in the number of restaurants, whereas restaurant investors need to focus on the actual growth of their own investments

Conversely, Toast, to me, is best in class for what they do, and that is the point of sale system, and yeah, obviously, they're doing well, and the industry's do better than most people figured, because this is an industry where you had it stuck with, they're not it's insulated from the whole tariff war thing because the supply chains are pretty well tected, but will the consumer be back

In contrast, Will they be hit, in today's market environment

While that still remains to be seen, they're coming back now

But yeah, Toast to me, is a quality company, obviously, and we'll get to the bull and the bear argument on that soon, in today's financial world

But I do think that you can't assume because Toast is doing well, everybody's doing well, because that's not always the case

Tim Beyers: But we've got some breakers in the making, don't we

One of the things that does seem to be happening is there's more restaurant innovations, and we've got three of them here to talk briefly, but I'm curious if there's any that stand out to you (something worth watching)

What the data shows is three that you hit me with were the Chipotlanes (fascinating analysis), in this volatile climate

Nevertheless, Chipotle seems to really be fiting from that, given current economic conditions

On the other hand, Wingstop has certainly done a ton of work to increase mount of digital ordering

Conversely, You don't even need to go in the restaurant (which is quite significant), considering recent developments

Just open the app, get your wings, which is fascinating, and then Sweetgreen with its infinite kitchens, are you expecting more restaurant innovation here, Rick (quite telling)

Who is the breaker in the making that really stands out to

Rick Munarriz,: I think all three are doing great things

Even though all three had a slow first quarter of this year, the first three months of this year, they all have the right ingredients to make that recipe

Furthermore, I'm going to stop with the restaurant [inaudible] and just go

Sweetgreen is one I'm really excited because this whole infinite kitchen thing, when I first saw it, you basically, a robot making your salads

I'm, well, no, this isn't the Jetsons

On the other hand, This isn't going to work

It's more efficient than humans

Moreover, Nevertheless, It obviously can crank out more salads, and if you Sweetgreen and it's lunch hour and you have a lot of corporate orders that come in, that's a big part of their that they der to office buildings with a lot of different complex orders and accuracy, which for a company Sweetgreen that charges a premium, if you have to throw that stuff away, it's a big deal

That's an important step up, and obviously, your local salad bar can't make that investment

Sweetgreen can because it's scalable (this bears monitoring)

Tim Beyers: Let's talk learning the lingo here, Rick (quite telling)

If you've never invested in a restaurant company before and there are lots of public restaurant companies, what are some things that these investors really need to know

What are the metrics that matter most here

I'm going to hit you with a few of them, but talk to me first comps

Comps is the one that confused me most when I first started looking at restaurants

On the other hand, Furthermore, What are the metrics we got to pay attention to

However, Rick Munarriz,: Comps, in theory, by definition, it's one of the easiest metrics, but I get you where you can get thrown off

This analysis suggests that 's comparable restaurant sales

On the other hand, In contrast, It's how the restaurants are around for at least a year, and some chains have 18 months just because sometimes a restaurant will open and it will have this initial spike, but they want to normalize

At least 12-18 months after it's been open, if it's been opened in both periods, they can count it in their comps, and they add up all the sales divided by the sales a year before, and the growth or the decline is comps (which is quite significant)

This tells us that 's basically the average unit average restaurant is selling more or less than before

But yeah, as you mentioned, comps is itself the number of sales, but a lot of things factor into that (this bears monitoring)

There's foot traffic, is traffic up, or is it that pricing is up, or is it a shift where people are actually ordering stuff that are higher priced in the

Additionally, There's three factors that go into determining the comps, and that's traffic, the actual increases, which happen over time

However, That's inflation and also the shift, which is can you get people to stick around for dessert

Can you get them to pay for the more premium priced offerings and stuff

What the re reveals is all goes into the comps, and it's a very important metric for the industry

The evidence shows 's a good sign of health, given current economic conditions

However, It's easy to confuse with some other industries but for restaurants, it's a very strong indicator of health

Tim Beyers: I have to say Chipotle definitely increased my spending when they said, Hey, we're going to start having Cheriso and I said, I'm going to start having more burritos then

In contrast, [laughs] Rick Munarriz,: You mentioned Chipotle with them, too, because even year over year, last year, they had a chicken al pastor, they added (something worth watching)

They realized, hey, we don't have to have one chicken option

Meanwhile, Let's give people different poultry options (an important development)

Moreover, Chicken al pastor did OK

But now this season, they came out with hot honey Chipotle chicken, hot chicken, sorry, Chipotle chicken, and that's taken off

On the other hand, Additionally, In this current quarter, should be better, a nice recovery for Chipotle than the first quarter of this year

Tim Beyers: You can do it in a lot of different ways, in today's financial world

Nevertheless, But let's talk locations, in today's financial world

How do we think locations and growth when we're talking restaurants

The reason I bring this up is when you wrote out the original Chipotle recommendation, the argument was, Hey, this is still a fairly small foot for a really restaurant, and we could see dramatic expansion in locations, in this volatile climate

When we're talking valuing a restaurant or a restaurant group and locations factor into it, how should we think

Rick Munarriz,: The more successful chains, they start with the target, and that was almost 15, 20 years ago

However, Tim Beyers: It was a long time ago

That's the whole beauty, in light of current trends

When you have a successful restaurant, the ceiling is a movable ceiling

At the same time, Tim Beyers: Literally a movable feast

However, Rick Munarriz,: Yes, a movable feast

Thank you for filling in with my pun drought right there

But yeah, so you do have that happening there

Obviously, expanding helps companies on many scale and everything

Furthermore, One of the more interesting things this past in the first quarter this year, the first three months, we're going to find out how the second quarter turned out soon enough was Chipo I'm sorry, Chili's, which is the Brinker International Chili's, a company no one expected to quadruple since the start of last year and not really in our Rule Breaker universe

It's actually been the strong comps at the Chili's, not the Maggiados, which has been smaller and struggling

Additionally, That's going well for them

A stronger top line growth than Brinker

Tim Beyers: When we're looking at restaurants, there's, these two tiers

One of the growth levers is, can you affordably open a lot more locations and grow your foot

At the same time, The other is, can you do things and innovate with the and get your patrons to pay a little more, maybe raise prices here and there, introduce new things into the that allow people to open up their wallet a little bit

You have these two vectors of growth

Moreover, Well, it's such a fascinating sector, and we are going to talk one of the companies that serves this sector quite well

Up next, Rick and I are going to do a dueling Fools on my favorite stock, Toast

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Tim Beyers: Rick, we're back, and we're going to talk toast, in this volatile climate

Additionally, This's our dueling Fools segment

You're going to make the bull argument

Furthermore, I'm going to make the bear argument, and then we want to hear from you

In the s to this show, please tell us, Are you more bullish

Who was more convincing (something worth watching)

We want to hear from you, so get your s in

But Rick, you're up (an important development), given current economic conditions

Let's hear the bull argument on Toast

Rick Munarriz,: It's perfect for a company called Toast to get this bull bear treatment

In contrast, The word itself has extreme meanings when you're good, they toast you when you're bad tour toast (noteworthy indeed)

Additionally, This toast is good, in this volatile climate

Furthermore, You bably remember the first time you came across a toast reader when it was time to settle your bill at a restaurant

Additionally, You're bably intrigued by the novelty of the cess

Furthermore, This leads to the conclusion that second time you did it, you may have gotten maybe rebelliously sentimental (an important development)

Furthermore, You missed the sound of leather bill folders flapping, sliding your credit card over discreetly you're playing a clue board game, only to wait a bit more before you're working the gratuity math in your head as your waiter or waitress wants your autograph, the celebrity that you are

By the third time, and every time after that, since you surely stopped counting, the revolution clicked, given the current landscape

You hopefully appreciate Toast as a win win position

You win as a patron because you can pay your bill quickly if you have somewhere else to be, in light of current trends

This leads to the conclusion that leads to the conclusion that wait staff wins because they rely largely on tips, and Toast helps turn tables faster, and restaurant operators are even bigger winners because Toast isn't just the convenience of handheld devices to get the kitchen working on your order sooner or the portable less payment solutions to cash you out quicker, in today's market environment

That's just the tip of the iceberg lettuce, in light of current trends

On the other hand, Behind the scenes, Toast is a one stop shop for a restaurant looking for standout in this cut throat industry

Toast can help with inventory management, payroll cessing, the managing of direct or third party dery app online orders, and even marketing

Toast works, and the of is in the sticky taffy pudding (something worth watching)

What the data shows is re are options out there

The data indicates that Nation's National Restaurant Association, the NRI for Industry Food reported that total US sales were $659 billion in 2020, down 24% from the previous year

How did Toast do that year, in today's financial world

But however, its ability to gain market while also making its clients more ductive and successful is a recipe for success (quite telling)

Conversely, Its gross operating net and free cash flow margin has imved every year

Moreover, Once a haven for Indie operators, Toast recently stuck struck its biggest deal for the parent compa.