Restaurant stocks have lagged broader retail this year by a significant margin, primarily because traffic and same-store sales have decelerated while costs for labor, food, rent, and interest remain at elevated levels to pressure margins. At the same time, consumers have shifted toward value formats and at-home consumption due to affordability issues, so many restaurant concepts look more cyclical to investors and less defensible than other retail categories.
The AI trade is also less relevant for restaurant chains in comparison to other retail categories that have seen an immediate boost in e-commerce conversions and efficient benefits in operations and marketing that have already had a profound impact on quarterly earnings and guidance updates. While restaurant companies are doing what they can to leverage generative AI, the story of its upside has been less appetizing to analysts and investors.
The notable year-to-date decliners in the restaurant sector include Sweetgreen (SG) -78%, (GENK) -66%, (RICK) -57%, CAVA Group (CAVA) -55%, Jack in the Box (JACK) -52%, Wendy’s (WEN) -48%, Portillo’s (PTLO) -45%, Cracker Barrel (CBRL) -43%, Chipotle (CMG) -43%, Bloomin’ Brands (BLM) -42%, Shake Shack (SHAK) -32%, and Red Robin Gourmet Burgers (RRGB) -22%.
Starbucks (SBUX) and Domino’s Pizza (DPZ) are also in negative territory for the year. Bucking the general downtrend, restaurant operators Brinker International (EAT) +16.6%, Yum! Brands (YUM) +14.8%, Dutch Bros (BROS) +13.8%, and McDonald’s (MCD) +7.4% have outperformed.
The Dow Jones US Restaurants & Bars Index (DJUSRU) is down 3.2% for the year vs. the +15.8% return for the S&P 500 Index.