Without an astonishing turnaround between now and Dec. 31, a five-year run of wins is about to be over for the restaurant stocks. A combination of buzzy menu items, talked-up expansion prospects and IPOs kept restaurant companies in the news in 2013, and as a group, 42 stocks followed by Yahoo Finance rose an average of 51%, despite the fact that they regularly struggled to record any significant revenue growth or customer traffic gains. That was more than 20 percentage points better than the S&P 500. This year, though, it’s been a much different story, as restaurants have trailed the market essentially since the start of the year. The ongoing rally had pushed price-to-earnings ratios up, and a number of stocks to a series of all-time highs, undoubtedly prompting some investors to take their gains and go. Also, food and labor cost concerns at restaurant chains have led to worries about their profit potential. And menu mania arguably hasn’t kept pace — no cronuts, no Wendy’s ( WEN ) pretzel bun (though it is trying out barbecue). As a result, the group showed a loss of 4.8% through Oct. 1, while the S&P rose 6.7% during the same period. The last time the restaurants were both negative and worse than the broader market was the financial crisis year of 2008, when the survey group, 31 stocks then, slumped 39.9%. With three-quarters of 2014 gone, only 12 stocks, or 29% of the group, are positive. Last year, 37 of the restaurants, or 88%, rose. To further demonstrate how different this weakness is, the four years prior to the up move in 2013 averaged an annual increase of 37.3% for the group. That restaurants increased as they did provides yet another illustration of the market’s never-ending climb in the low-rate environment, a time in which buoyant equity prices haven’t always matched the realities of business results. These are companies dependent on discretionary spending, making the run now appear almost preposterous considering the sluggishness in the economy and the reluctance of many consumers to spend in the last half decade. One examining only the stock prices might reasonably assume their growth had been torrid. It wasn’t necessarily the case. This year, a number of publicly traded chains began 2014 complaining that winter weather was keeping diners at home, hurting their revenue and earnings. Restaurants and retailers often blame disappointing numbers on the weather — that doesn’t mean it’s never true, only that it’s regularly done. At any rate, share prices worsened from the first-quarter loss of 2.6% to 2.8% right after the second quarter ended and to almost 7% by Aug. 21. And at each interval, the S&P had improved, widening its lead over the restaurants. It’s some consolation that the restaurants have managed in the last few weeks to erase part of their losses, actually doing so amid a decline in the market since mid-August. Now, the restaurants have narrowed their year-to-date decline to 4.8%, while the S&P has given back 0.8 percentage points, though it’s still up 6.7%. Outside of a few developments, there hasn’t been a great deal to keep the category going. The planned merger between Burger King ( BKW ) and Tim Hortons ( THI ) has helped lift those two 29% and 35%, respectively, while a buyout announcement for Einstein Noah ( BAGL ) means it’s now up 39% on the year. But, at the same time, Romano’s Macaroni Grill owner Ignite Restaurant Group ( IRG ) has seen its earnings lag, and the stock has slumped more than 50%. McDonald’s ( MCD ), the largest in the group in terms of sales and market cap, has lost 2.4%. Wendy’s, this site’s restaurant stock of the year for 2013, is down 6%. Starbucks ( SBUX ) has fallen 5%, though consistent star Chipotle ( CMG ) has been an upside leader, gaining 24%. New stocks remain mixed. Unless earnings multiples quickly make for “cheaper” stocks, diner counts surge, or menu-driven buying resumes, it’s hard to imagine this changing markedly in the three months ahead.
via Business News http://ift.tt/1uRPRqg
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