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Restaurant Stocks: Are Consumers Warming Up?

Posted by: Ben Steverman on March 3, 2009

Was there a subtle shift in consumers’ mood last month? Or was it just the sunny weather?

Restaurants are a pricier, expendable item in my family budgets. But, in February, Americans ate out more than expected.

According to UBS (UBS) analyst David Palmer, fast food sales rose 2% to 3% in February after slow 0% to 1% growth in January. His fast food category includes chains like McDonald’s (MCD), Subway, Taco Bell, Burger King (BKC) and Wendy’s (WEN). They’re relatively cheap options, so they’ve held up pretty well despite the recession.

February sales at pricier casual dining outlets have been under more pressure. So February data on these restaurants were more of a surprise to Palmer, who estimates a “modest” decline in same-store sales of 2% or so.

Because they’re more expensive, consumers have cut way back on casual chains like Darden Restaurants (DRI), the owner of Olive Garden and Red Lobster, and Brinker International (EAT), the owner of Chili’s. A 2% drop in sales might look bad, but it’s actually a sign spending declines are slowing.

The problem with this shreds of optimism: These figures may be based on the fact last month was “the warmest February in four years and the fourth driest February in the last fifty years,” Palmer wrote March 3. He added: “We believe we will get a cleaner picture of industry strength in a more weather neutral month, and we will see if March turns out to be so.”

Investors can hope that consumers are starting to loosen up their spending after last fall’s draconian contraction. But they’re still waiting for solid evidence.

Reader Comments

The Mad Hedge Fund Trader, San Francisco, CA

March 6, 2009 11:09 PM

One of the sectors hardest hit by the recession has been casual dining. It could be a nice recovery play when the consumer comes out of his bomb shelter. Best of breed here is Darden Restaurants (DRI) with Olive Garden and Red Lobster, followed by Chuck E. Cheese (CEC), the Wolfgang Puck offshoot, California Pizza Kitchen (CKKI), Brinker International (EAT), and Chipotle (CMG).

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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