This post is part of the On the Margin blog.
For all the talk of consumers rushing to newer concepts, so far in 2017, Wall Street appears to be taking a different bet when it comes to restaurants, pouring money into old standards.
The best stock performances so far this year include large, international companies, like Domino’s Pizza Inc., Restaurant Brands International Inc., Darden Restaurants Inc., and McDonald’s Corp.
Domino’s and Darden have both outperformed other concepts and generated investor enthusiasm. RBI, meanwhile, acquired Popeyes Louisiana Kitchen Inc. and solidified its status as a major, multi-brand player.
And McDonald’s Corp. has flourished this year as investors bet that technology and the operator's foray into fresh beef will lead to strong sales.
The performances and projections have heartened investors after a recent run of weak sales, including the first quarter, when average same-store sales at publicly traded restaurant companies fell.
As a result of the four companies’ performances, Nation’s Restaurant News' weighted stock index is up 16 percent this year.
But stocks have been down more recently — they have fallen 2 percent over the past month — ending a strong run for the NRN index that began just before the presidential election in November.
And as strong as stocks have been, many companies have been punished amid unmet expectations and general weakness.
Industry same-store sales have generally been weak for well over a year, and same-store sales for publicly traded restaurant companies declined in the first quarter. Investors have responded by pricing many stocks down.
Zoe’s Kitchen Inc. has seen its stock fall nearly 50 percent this year amid its own sales concerns. Same-store sales declined 3.1 percent in the first three months of the year, and investors worry that the bloom is off the fast-casual chain’s rose.
Kona Grill, which was a strong stock in 2013 and 2014, is down more than 70 percent this year. But it has also lost 84 percent of its value since the end of 2014, when the stock traded at just over $23 per share.
Investors have avoided casual-dining chains. On average, casual-dining stocks are down 6.6 percent in the first half of the year, worse by far than any other segment. Applebee’s owner DineEquity Inc. is down 41 percent, and Ruby Tuesday Inc. is down 36 percent.
The performance of the casual-dining segment makes Darden’s performance all the more impressive.
Thanks to strong sales at Olive Garden, where same-store sales rose 4.4 percent in the fourth quarter, Darden’s stock is up 26 percent this year.
On balance, however, quick-service companies performed best. Stocks are up nearly 3 percent on average at quick-service companies. Investors have sought safety in more established concepts, and the quick-service segment is loaded with some of the biggest.
McDonald’s Corp. is up nearly 26 percent this year, RBI is up nearly 30 percent, and The Wendy’s Co. is up more than 13 percent.
But none of them can beat the performance of Domino’s Pizza Inc., whose stock is up more than 32 percent, and is now trading at more than $200 per share.
Domino’s has generated strong same-store sales for years now, including 10.2-percent growth in the first three months of the year. Its stock has risen accordingly. Since the end of 2013, Domino’s stock has increased 203 percent.
Only one stock has outperformed Domino's: Dave & Buster’s. Since its 2014 initial public offering, the food-and-entertainment chain’s stock has risen 316 percent. It is up more than 18 percent so far this year.
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]
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