On the Margin
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Despite weak sales, stocks keep surging

This post is part of the On the Margin blog.

Restaurant stocks keep surging. They’ve increased more than 7 percent over the past month, according to the NRN Restaurant Index, and are now up close to 5 percent on the year. 

Numerous restaurant companies have hit 52-week highs or are getting close, including Bob Evans Farms Inc., Buffalo Wild Wings Inc., Dunkin’ Brands Inc., Brinker International Inc., Jack in the Box Inc., Restaurant Brands International Inc., The Wendy’s Co. and Yum Brands Inc.

That performance comes in stark contrast to sales trends. Restaurant same-store sales have been weak all year.

Same-store sales fell 1.3 percent in November, according to Black Box Intelligence. That was the industry’s worst performance since July and was the ninth consecutive month of declines. So much for the idea that the election would lead to improved industry performance.

Stocks are going up, however, because there is a general sense that they’ve hit bottom this year.

Profits next year are expected to continue improving thanks to low commodity costs. And the industry seems to be offsetting labor cost increases, for the most part.

In addition, consumers are feeling better about themselves. Consumer confidence surged in December to just one point below its 2015 peak, which was the highest level since 2004. Consumers, according to the survey, said they’d mostly heard positive potential economic news in association with Donald Trump’s November election. 

There’s also a belief that the incoming Trump administration would reduce regulations on restaurants while providing the tax cuts and infrastructure investment that could get people spending again.

Stocks have rallied since the election. The Dow Jones Industrial Average has recorded 13 record closes since then. The S&P 500 is up 8 percent since Nov. 4. Based on this, in fact, the restaurant industry is simply keeping pace.

Still, investors seem to believe whatever restaurant recession we did have is over. At least they’re betting on it.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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