On the Margin

Restaurant stocks rebound, at least somewhat

This post is part of the On the Margin blog.

Restaurant stocks increased nearly across the board on Monday, amid a good stock market performance overall and a strong report from the foodservice supplier Sysco.

The NRN Restaurant Index increased more than 2 percent in morning trading Monday. That was roughly in line with the broader performance of the stock market: The Dow Jones Industrial Average and the S&P 500 indexes both rose about 2 percent.

Strong performers include Ignite Restaurant Group (up 12 percent), J. Alexander’s (up 7 percent) and Dave & Buster’s (up 5 percent). Potbelly Corp. stock increased 3 percent after Maxim Group Analyst Stephen Anderson upgraded the stock to Buy.

A couple of companies’ stock prices fell, however: Diversified Restaurant Holdings declined 4 percent. Noodles & Company declined nearly 8 percent after amending its credit agreement to loosen financial requirements. Bravo Brio Restaurant Group and Biglari Holdings were also down slightly.

Despite the general improvement on Monday, this has been a tough year overall for restaurant stocks.

So far this year, restaurant stocks are down more than 3 percent amid concerns about weakening sales and traffic. They are down more than 10 percent over the past six months.

Investors have been especially hard on certain companies that have seen sales problems eat into their finances or store count.

Papa Murphy’s is down about two-thirds from its 52-week high. Noodles is down at a similar level. Ignite Restaurant Group, even after rising 12 percent, is trading below 35 cents per share — a fraction off its $4.50, 52-week high. Ruby Tuesday, which recently closed 95 locations, is trading at half of its 52-week high.

Several other chains are down off their 52-week highs, however, including Shake Shack Inc., Panera Bread Inc., McDonald’s Corp., Popeyes Louisiana Kitchen Inc., Buffalo Wild Wings Inc., and Fiesta Restaurant Group Inc.

The industry weakness is to be expected this year, given that restaurants were generally priced at high valuations, and because same-store sales have struggled all year long. Same-store sales and traffic have been down for much of the year, according to both the MillerPulse and the Black Box Intelligence indexes.

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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