One of the more unusual segments of the market right now is the restaurant industry. I look at restaurants in part to see how consumers are behaving.
Are consumers trading up? Trading down? Spending more or less on each trip? Is there regional strength/weakness?
Sometimes, you can draw a clear picture of the health or weakness in consumers by looking at restaurants. Today, there seem to be contradictory things going on when you look at same-store sales trends at restaurants.
First off is $Chipotle Mexican Grill(CMG)$ , which has long been a steady growth company but suddenly saw sales crater over the summer. Is this a Chipotle-specific problem or something bigger?
$Starbucks(SBUX)$ is another former stalwart that seems to be heading in the wrong direction. Maybe consumers are getting weaker?
If the consumer is weak, it would make sense that $McDonald's(MCD)$ ’s would be seeing growth, as we saw in 2008 when same-store sales jumped 6.9% despite a deep recession. But that wasn’t the case until the last few months.
And $Portillo’s Inc.(PTLO)$ s, the one stock I own, appears to be struggling, but compared to the companies above, perhaps things aren’t so bad.
The story seems clear. Consumers have started struggling over the last 2-6 quarters, depending on the restaurant you look at.
The downtrend makes sense until you get to $Darden Restaurants(DRI)$ and some of the steakhouses, like LongHorn Steakhouse. It’s had mid-single-digit same-store sales growth for years, and it is outperforming every company I showed above.
$Texas Roadhouse(TXRH)$ has been similar outside of the April quarter.
In general, it looks like restaurants have struggled a bit more over the past year as costs rose and consumers started to pull back their eating out habits.
But people are willing to spend more to go to a steakhouse…which seems contradictory to the struggling consumer narrative. And not every steakhouse is improving, as we see with Darden’s “fine dining” segment in decline.
There’s no consistent through line, which seems consistent with the consumer environment today. There are areas of weakness and areas of strength. Maybe that’ll mean a recession to some, but not a recession for the entire country/world, as we may have feared only a few months ago.
But if we start to see negative same-store sales comps across the board at restaurants, it’s worth paying attention to. And if McDonald’s is outperforming the market, watch out.
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