Overall, the franchise sector outperformed the S&P 500 in 2017. That’s a great thing, but it doesn’t mean everyone in the franchise world had a great year on the market.
The top performer by percentage was Arcos Dorados, the largest McDonald’s franchisee with 2,100 locations across South America. It rocketed up by 91.67 percent, driven by the fast-food giant’s stellar performance (that stock rose by 42.73 percent). As of the third quarter, McDonald’s had same-store sales growth of 4.1 percent, but things were even better in South America. Arco Dorados saw a 10.4 percent same-store sales growth.
The Joint and Planet Fitness were also at the top by percentage, both driven by strong unit growth and incredible revenue growth.
Hotel stocks did great as well; the past several years of growth mean market saturation for the big brands. All those new brands, all those renovations and all those new markets mean travelers are likely going to a Marriott (up 64.3 percent) a Wyndham (up 52.6 percent) or an Intercontinental hotel (up 43.7 percent). The big three hotel stocks are also a disaster-friendly investment. All three saw hurricane surges as relief workers, displaced residents and the construction industry utilized them as long-term housing.
At the other end was The Habit Restaurants, down 44.3 percent or $7.65. The performance of the brand shows the shift in fast food to aggressive value. Habit saw its first quarter of same-store sales declines (down just 0.2 percent at that) in 55 quarters, but investors clearly saw value and convenience as a traffic driver and see it as a major thesis going into 2018.
Bojangles (down 36.7 percent) was also caught up in that shift. Surveying showed it’s not perceived as great value among consumers. New messaging has helped perk the stock up 7 percent year-to-date, but watch for them and other “elevated” QSRs to get more aggressive.