Skip to main content

Investors Work Up an Appetite for Restaurants, Even as Prices Leave a Bad Taste

Sooner or later price increases have got to weigh on the consumer -- and impact restaurant revenue.
Comments

Restaurant stocks have staged a mini-recovery of sorts over the past two months.

In early July, a basket of 40+ restaurant stocks I track were down 27% year-to-date at that point in time, while the S&P 500 was off about 19%. That same basket is now down 18% versus -15% for the S&P. Still a very rough year so far, but a nice pickup over a couple of months. The Baird Real-Time Restaurant Survey reported on Tuesday that same-store sales for the week ended September 4 were up 6% year over year.

The prices consumers are paying, however, are becoming more shocking. Thursday's last-minute Wendy's (WEN) (down 16% YTD) lunch drive-through yielded one of their newer creations, a Pretzel Bacon Pub Burger (which was really good) and medium Frosty, for the princely sum of $10.15.  andespecially if input and labor costs continue to rise, and the consumer pulls back on restaurant spending.

The list of names in positive territory, however, has grown since July. Tiny Ark Restaurants (ARKR) (up 16%) has been joined by Nathan's Famous (NATH) (up 12%), BBQ Holdings (BBQ) (up 9%), First Watch Restaurant Group (FWRG) (up 8%), Texas Roadhouse (TXRH) (up 3%), and Bloomin Brands (BLMN) (up 0.1%).

The Big Five -- a self-coined group that includes McDonald's (MCD) (down 1%), Chipotle Mexican Grill (CMG)  (down 2%), Yum! Brands (YUM)  (down 15%), Domino's Pizza (DPZ)  (down 36%) and Darden Restaurants (DRI)  (down 11%) -- are down an average of about 13% for the year.

The bottom five performers include Red Robin (RRGB) (down 52%), BurgerFi (BFI) (down 49%), Noodles & Co.  (NDLS) (down 47%), One Group Hospitality (STKS) (down 43%) and Sweetgreen (SG) (down 39%).

Busted IPO BFI, in which I took a position as a "special situation," continues to suck wind. Second-quarter results were worse than expected, and the company now expects full-year adjusted EBITDA of between $12 and $14 million, and revenue of $175 million-$180 million. While same-store BurgerFi  sales were down 4% year/year, they increased 2% for the company's recently acquired Anthony's Coal Fired Pizza and Wings, which may be the potential gem here. There are currently 122 BurgerFi locations (97 franchised, 25 company-owned) and 61 Anthony's (all company owned) locations.

Comeback player of the past two months goes to Wingstop (WING) (down 13%), which broke out of the bottom five with a 57% run-up over the past two months driven by a solid second-quarter earnings surprise, and 12% dividend increase.

(Please note that due to factors including low market capitalization and/or insufficient public float, we consider ARKR, BBQ, RRGB, BFI to be micro-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)

(CMG is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells CMG? Learn more now.)

At the time of publication, Heller was long BFI, EAT.