With the outlook for sales and profits at their post-recessionary peak, investors have been putting money into restaurant stocks this year.
The NRN Restaurant Index has risen more than 7 percent so far in 2015, even though it has fallen more than 1 percent over the past month. Restaurant stocks have risen more than 14 percent over the past six months.
By comparison, the S&P 500 Index has increased 2 percent in 2015, and S&P Consumer Discretionary stocks have increased just more than 4 percent.
Last year, restaurant stocks did not perform nearly as well, having underperformed all of the broader stock indexes for the first time in years. But that appeared to be more of a holding pattern than anything else. In 2013, restaurant stocks increased by 45 percent on average.
This year, the industry has been the beneficiary of higher expectations heading into 2015. Gas prices have dropped, the unemployment rate has fallen and commodity costs have eased. Restaurant sales indexes began the year averaging more than 6-percent increases in January. While both the MillerPulse and the Black Box Intelligence surveys pulled back in February and March, much of that was blamed on bad weather.
The industry has also benefited from a rush to growth by consumer industry investors, which led many restaurant companies to file for initial public offerings. Many of those companies have performed well so far in 2015.
Shake Shack Inc., for instance, went public in January, more than doubled its stock price on its first day of trading and has just kept going. Its stock has risen 35 percent since trading closed on its first day as a public company.
Investors also discovered a few other companies that went public last year, but which didn’t perform well right off the bat. Papa Murphy’s Holdings Inc., which struggled immediately after its 2014 IPO amid concerns about some of the health of its franchisees, has risen 53 percent this year due to strong sales.
Dave & Buster’s Entertainment Inc., one of the few restaurants that didn’t surge on its IPO, has been discovered by consumer investors in recent months due to strong results. Its stock has risen 20 percent on the year, and has nearly doubled over the past 12 months. El Pollo Loco Holdings Inc., which went public last year, has seen its stock increase 38.6 percent in 2015. Stock in Zoe’s Kitchen Inc. has risen 14 percent.
Activist investors have also had a major impact on the industry, pushing companies to increase value, and therefore the stock price. Darden Restaurants Inc., for instance, has seen its stock increase 11.5 percent as the company’s board, recently overhauled by activist investor Starboard Value LP, began making changes.
Stock in Panera Bread Co. had been stagnant for the past two years, until recently, when it said it would take on debt to buy back shares and refranchise some locations. Its stock has now increased more than 4 percent on the year.
Even speculation about an activist can impact stocks. McDonald’s Corp.’s stock, for instance, has increased for the year despite an 18-month sales slump, in part because investors have speculated that an activist investor is ready to take an interest in the Oak Brook, Ill.-based operator.
The one exception to the activist rule is Bob Evans Farms Inc., where directors backed by Sandell Asset Management won four seats on the board. Yet its stock has fallen 20 percent in part due to weak sales, but also in part because the company opted against a sale of real estate that many investors hoped for.
Investors have punished other companies that haven’t performed to expectations. For instance, stock in Noodles & Company has fallen 28 percent on the year amid sales weakness.
Then there is Ignite Restaurant Group Inc., whose shares have been more than halved on the year following severe weakness at Joe’s Crab Shack and deteriorating results that forced the sale of Romano’s Macaroni Grill for $8 million — a fraction of the $55 million price the company paid for the chain two years ago.
Contact Jonathan Maze at [email protected].
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