America Is Eating Out Again
May 30, 2017
I recently watched The Founder, the movie about how Ray Kroc took – although some might say stole – a brilliant restaurant idea from the McDonald brothers and grew it into a global juggernaut. The movie pointed to the halcyon days when Americans began eating out as a reflection of good times and prosperity.
We definitely aren’t as giddy about fast food anymore, but eating out is making a resurgence. The good news is that there are ways for investors to cash in on the trend.
First, I must note that in recent years, eating out has surpassed eating at home as a reflection of a nation on the move as well as the fact that more and more households now have two parents in the workforce. However, then came major food deflation that made grocery shopping cheaper and eating at home once again become irresistible.
Now the pendulum is swing back, and folks are back out there looking for fast casual eateries.
In the most recent retail sales report, eating at restaurants climbed 0.4% month-over-month and 3.9% year-over-year. At the same time, eating at home fell 0.4% month-over-month but gained 1.9% year-over-year. Unadjusted, the trend is even starker, with eating out surging in the first quarter of 2017.
One big winner from this trend is Red Robin Gourmet Burgers (RRGB). You know, that restaurant you always see commercials for with the catchy jingle and bottomless steak fries – YUM! The company posted quarterly earnings of $0.89 a share against expectations of $0.57 a share on May 16, and consequently, full-year consensus surged. Analysts now expect EPS of $2.88 in 2017 (up from $2.78) and $3.39 in 2018 (up from $3.22).
The same day, Jack in the Box (JACK) – which operates one of the largest burger chains in the country as well as Qdoba, a Mexican fast-casual restaurant – posted an earnings beat but lowered guidance. Nonetheless, the stock rallied on speculation of a potential sale of the company.
The aforementioned McDonald’s (MCD) is on fire, and Shake Shack (SHAK) is also beginning to live up to the hype. Although I’m not the biggest fan of their burgers, I love the story and am now even warming up to The Habit Restaurants (HABT).
The restaurant space is an area I’m keeping a close eye on for investment opportunities in my newsletters, both longer-term holdings and quick-hit trades. You can be sure we’ll jump on the right ones.