Restaurant Sales Projections | Income nibbled by Ozempic

The Montreal franchiser MTY – behind Mikes, Scores, Bâton Rouge, Thaï Express, Valentine and many other brands – saw its stock hit its lowest level in a year this week on the Toronto Stock Exchange. One of the reasons given? Ozempic.

Ozempic is this medicine authorized to treat diabetes, but increasingly known for its ability to contribute to weight loss by curbing the appetite. It is considered one of the elements influencing the value of companies associated with the catering and food production sector.

The growing popularity of Ozempic and other similar drugs associated with weight loss could cause consumers to buy less food, particularly high-calorie snacks and meals prepared at fast food counters.

The feared long-term decline in sales of certain companies would be fueled primarily not by the fear of seeing people favor healthier diets, but more by the concern that consumers would eat less.

At the beginning of October, the British bank Barclays published a research report in which it was stated that drugs like Ozempic should be considered a risk for companies in the fast food sector, in particular, and that this risk would not be not fully expected.

The Bloomberg agency reported at the beginning of the month that the CEO of Walmart had told it that its customers taking Ozempic were buying less food.

MTY’s organic growth is being hampered by the difficulties of the industry in which the company operates, underlines CIBC analyst John Zamparo in a note sent to his clients last week.

This expert specifically refers to the potential impact of weight loss drugs as being one of the headwinds for the industry.

His colleague Nick Corcoran, of Acumen, believes this could be a longer-term concern, but in the short term these drugs remain “excessively expensive” and out of reach for most people, says -he has The Press.

MTY’s stock has lost 30% of its value since its February peak and is down 23% since the start of September. Even the publication last week of a quarterly financial performance better than expectations could not reverse the trend.

If John Zamparo believes that the decline in MTY’s stock since the presentation of financial results last week is unjustified, he raises several points to try to explain the current dynamics in the industry.

In addition to the potential impact of weight-loss drugs, he cites increased consumer caution in the current uncertain economy and the resumption of student loan payments in the United States.

Nick Corcoran is also surprised by the reaction of investors. Despite MTY’s stock market slide, he continues to recommend purchasing the stock of the company which also operates the Sushi Shop, Dagwoods, La Diperie, Yuzu Sushi, Cafés Van Houtte and Café Dépôt brands, among others.

According to financial data firm Refinitiv, MTY’s stock is only recommended by three of the seven analysts who officially follow the company’s activities.

The current price-to-earnings ratio underestimates the potential of MTY’s business and the improvements made in recent years, according to John Zamparo, who also continues to suggest buying MTY stock.

Consumer spending could be under pressure in 2024, but John Zamparo sees MTY and the fast food sector as “defensive” compared to others.

For his part, analyst Sabahat Khan of RBC intends to monitor the impact that minimum wage increases in Ontario (October 2023) and California (January 2024) could have on MTY’s network of establishments.

He also notes that obtaining adequate financing for franchisees has been more difficult recently due to the uncertain macroeconomic environment and the increase in interest rates.

At Raymond James, Michael Glen attributes the contraction in MTY’s valuation multiple to the transformation of the business model, once primarily oriented around fast food court locations of office towers and shopping centers, to one including establishments with more and more dining rooms with table service. He notes that investors historically give a lower multiple to companies with this type of model.