When the U.S. economy largely re-opened for business in 2021 -- with only a few cities and states holding out -- restaurant owners figured the good times would roll once the doors were opened.
They were right to a point.
“After a somewhat surprisingly solid 2021 for restaurant stocks, the first two months of 2022 have been choppy,” said Jonathan Heller on Real Money.
To Heller, the restaurant issue represents an interesting dynamic. “Consumers appear eager to eat outside the home again after facing pandemic-related limitations the past two years, but that renewed interest comes against a backdrop of rising prices, smaller portion sizes and limited staffing that forces longer wait times,” he said.
The proof is in the data. Currently, a basket of 40-plus restaurant names with market caps in excess of $100 million are down about 5.7% year to date, though that's still better than the S&P 500 (down 7.8%), Russell 2000 (down 9%) and Russell Microcap (down 9.1%).
The real-world clarifies the numbers.
“A recent meal at a Bloomin Brands' (BLMN) Bonefish Grill location told the tale about present-day restaurant experiences,” Heller said. “The place was absolutely packed, but seemed to be slightly understaffed. It was a great meal for sure, but I did notice the portion size was rather small, especially for the $35 I shelled out for a piece of Chilean sea bass and a couple sides.”
“That's the world we are living in, and it will likely get worse before it gets better,” he added.
There is upbeat news, as some eateries are reporting solid numbers in ’22.
“Bloomin Brands is up 19% year to date, which makes it our second-best sector performer so far this year, just behind Ruth's Hospitality Group (RUTH) (up 22%),” Heller said. “Brinker International (EAT) (up 17%), a member of my 2022 Tax Loss Selling Recovery Portfolio, is in third place.”
The "Big Five" -- a self-coined group that includes McDonald's (MCD) (down 7%), Chipotle Mexican Grill (CMG) (down 14%), Yum Brands (YUM) (down 10%), Domino's Pizza (DPZ) (down 24%) and Darden Restaurants (DRI) (down 3%) - are down an average of about 12% for the year, Heller adds.
Moving forward, however, Heller says restaurants – especially newer ones - can expect a “wild ride” in 2022.
