By Jack Hough
A hero returns on July 4. Kentucky native Joey Chestnut once ate 4 1/2 pounds of rib-eye steak in nine minutes -- with salad, baked potato, shrimp cocktail, and a roll. He has broken records for speed-gobbling dozens of foods including boiled eggs, boysenberry pie, and jalapeño poppers. But he is best known as a 16-time holder of the Mustard Yellow Belt for his wins at the Nathan's Hot Dog Eating Contest, held each Independence Day in Coney Island, Brooklyn. If not for Chestnut, six-time winner Takeru "Tsunami" Kobayashi, who once took on a Kodiak bear in a hot dog eating contest on Fox (and lost, but still), might have proven unstoppable.
Chestnut missed last year's competition due to scandal -- he signed an endorsement deal with vegan hot dog maker Impossible Foods, and Nathan's banned him. So instead Chestnut went to Fort Bliss in El Paso, Texas, to challenge top Army chowhounds to a 4-on-1, five-minute eat-off, which he won, 57 dogs to 49, to chants of "USA." This year, Chestnut and Nathan's have settled their beef, and the champ returns to Coney Island. Unsurprisingly, Nathan's Famous stock is up 68% over the past year.
OK, maybe it's a little surprising about the stock. In fact, the restaurant industry is full of surprising returns at the moment. EATZ -- that's the ticker for the AdvisorShares Restaurant exchange-traded fund, which tracks 25 names -- has made 23% over the past year, beating the S&P 500 index by 10 points. What about obesity meds? Judging by the general dejigglefication I'm noticing among acquaintances, and the three-year doubling of revenue at Eli Lilly, I would have expected a Zepbound step-down in dining returns. So why are share prices plumping up instead?
Nathan's probably isn't the best example. It's a small company that makes most of its money distributing branded foods outside of its restaurants, including through supermarkets, theme parks, and arenas. Operating results have shown modest improvement, and there was speculation early this year about a buyer emerging to take the company private.
More illustrative is the case of Brinker International, which was added last week to the Barron's Top CEOs list. Brinker owns the 50-year-old sit-down chain Chili's, where new management has trimmed the menu to make kitchens more efficient. Viral TikTok videos have kids wanting to try the fried mozzarella "cheese pulls" -- picture Stretch Armstrong, but as an appetizer. But the biggest hit has been a new menu of combo meals starting at $11, including burgers that taste like better, beefier versions of McDonald's top sellers. Just over a year ago in this space, I vented about fast-food inflation ( "McDonald's Prices Make Me Grimace. Are Consumers Fed Up?"). Since then, McDonald's shares have done only half as well as the market, returning 8%. But Brinker stock is up 190%.
Brinker has shown that table-service turnarounds can still yield big returns, but there might be another factor at work here beyond cheese pulls and combo meals. "Casual dining is having its moment in the sun as survivor bias has pushed the best to the top," wrote the restaurant team at J.P. Morgan this past week. Bankruptcies over the past year include Red Lobster, T.G.I. Fridays, Hooters, On the Border, and Buca di Beppo. Other chains have reduced their restaurant count, including Applebee's, owned by Dine Brands Global; Outback Steakhouse, owned by Bloomin' Brands; and Denny's. Chili's isn't the only beneficiary. Texas Roadhouse and Darden Restaurants, which owns Olive Garden and LongHorn Steakhouse, have reported healthy gains in same-store sales, too. Darden stock has returned 45% in a year and trades at 22 times earnings, close to the broad market's multiple. Texas Roadhouse is up 11% and goes for a more ambitious 28 times. Brinker trades at 20 times earnings. In August, it's expected to report a fourth straight quarter of rapturous same-store sales growth, after which comparisons with year-ago results will grow more difficult.
In casual dining, JPM likes Darden, which is seeing solid growth in take-home dishes, including through a partnership with Uber Eats. In fast food, JPM this past week upgraded Yum! Brands -- owner of Pizza Hut, Taco Bell, and KFC -- to Overweight on new management's potential to grow the global store count by 4% a year while rolling out a consolidated software platform called Byte to improve order delivery, inventory forecasting, and worker turnover. And in fast casual, JPM prefers Starbucks to Chipotle Mexican Grill, given its greater ability to recapture lost business.
But the bank also has a warning. Eight million Americans are now taking GLP-1 drugs for obesity and diabetes. That's likely a small fraction of the market, and there are lower-cost pills that will take the place of injectable drugs, perhaps by the middle of next year. "This is a topic that has been avoided on most restaurant conference calls despite more prominent discussion in the Staples space," write JPM's restaurant analysts.
Elsewhere in restaurants, Krispy Kreme and McDonald's just announced they're ending a sales partnership because the confectioner couldn't make money while meeting demand. Krispy Kreme stock is down more than 70% this year. I'm wondering whether the company will ever get another chance to reach that many mouths. Also, I'm wondering how many glazed doughnuts Joey Chestnut could eat in five minutes. He once downed 343 mini doughnuts in eight minutes -- I'm still working on the algebra.
Two of the worst-performing stocks in that EATZ fund are salad seller Sweetgreen, down 57% in a year, and Cava Group, a Mediterranean chain, down 21%. BofA Securities wrote this past week that it favors both companies for their limited menus, assembly-line production, and rapid share gains in niche markets. Sweetgreen, the bank reckons, could expand to 1,400 locations in a decade from 245 last quarter, while Cava could grow to 2,000 -- double management's target -- from 382. Nibble carefully. Cava goes for more than 100 times earnings, and Sweetgreen isn't profitable.
Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron's Streetwise podcast.
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June 27, 2025 13:36 ET (17:36 GMT)
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