It's undeniable that restaurants are in a real pickle.
McDonald's shares just had their worst day since the start of the pandemic last week, as the company outlined big investments meant to reverse lackluster sales. Foodborne illness outbreaks are happening so frequently they've become an election issue. Roughly a third of restaurant owners reported they weren't profitable in the first half of 2026.
It's easy to understand why. There's a perfect storm brewing in the industry as it faces higher input costs and falling demand from consumers who are counting calories or pennies (or both).
Investor skepticism has followed. The latest data on short interest, through September 15, showed an increase of 3.8% in the 29 restaurant stocks tracked by Raymond James, on top of a 2.9% increase in the last two weeks of August.
"Said increases are consistent with the sharp negative sentiment shift we've seen across our restaurant universe and several other consumer sectors (we attribute largely to higher oil/rate concerns)," writes analyst Brian Vaccaro in a note Monday. Restaurants in his firm's tracking index are down 13.5% in September alone, worse than the broader group of discretionary stocks.
Blame the loneliness epidemic (people have fewer friends to dine out with), the obesity epidemic (more people are getting on GLP-1 medications), or the cost of living crisis (the dollar menu has given way to the value menu, but consumers aren't biting).
And yet, not all restaurant stocks are in the dumps: Several casual-dining restaurants are outperforming, with Chili's owner Brinker International, Outback owner Bloomin' Brands, Cheesecake Factory, and Red Robin Gourmet Burgers all beating the S&P 500. Olive Garden owner Darden Restaurants isn't far behind.
Industrywide same-store sales were up 2.2% month to date, Jefferies analyst Andy Barish highlighted in a note Friday. Traffic drifted lower, but the average check was up nearly 4%, while both same-store sales and traffic improved by 40 basis points compared with the full month of August.
In fact, same-store sales were ahead of the sub-2% range seen every month since the start of the year, he writes. "We'd flag recent Darden commentary on improving demand trends through September, and think full-service outperformance (vs limited service) is continuing."
Price is undoubtedly a big part of the equation: When a Big Mac isn't all that much cheaper than a sit-down meal, many consumers may see the latter as the better bang for their buck.
Full-service restaurants $(FSR)$ "materially outperformed limited-service in 2026, with investors rewarding traffic resilience, value positioning, and improving margins," writes Stephens analyst Jim Salera in a new note Monday. "We believe guests are increasingly attracted by overall value and experiential occasions."
Salera's data also point to tailwinds for restaurants from modest population, job, and wage growth, with the strongest trends in the southern U.S.
That creates a potential mismatch: Raymond James's Vaccaro notes that the increase in short interest was broad-based, including a roughly 5% increase for casual-dining stocks, even as he notes that "casual dining demand trends remain solid."
For his part, Salera calls Brinker "the most compelling name on our restaurant coverage list given substantial traffic, margin, and unit whitespace," meaning it has room to expand.
He also likes that Brinker and Texas Roadhouse, a year-to-date underperformer, have grown their customer bases faster than the populations in their surrounding areas. Vaccaro is also bullish on Brinker. Bloomin' Brands and Red Robin are Barish's Buy-rated casual dining stocks.
Barron's recently highlighted favorable technicals for Cheesecake Factory.
Ultimately, casual restaurants aren't immune to the industry's problems. For now however, they're a bright spot among a group of stocks that's seen a stomach-churning drop in 2026.
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