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Restaurant Roundup - January 7, 2014
There have been many noteworthy developments in the restaurant space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.
Notable Earnings Releases Lead to Record-High Share Prices
A number of restaurant operators reported record results in the third quarter. Handsome earnings and share-price gains were standard in this space, instead of the exception, and the advances came in virtually every subsector (quick service, fast casual, casual sit-down, and coffee shops).
AFC Enterprises (AFCE), owner and operator of Popeyes Chicken & Biscuits, saw its third-quarter share profits rise 28%, on the back of same-store sales gains of 5% in addition to lower chicken prices. AFCE stock has been on an upward trajectory throughout 2013, though it has receded somewhat in recent weeks.
Fellow mid-cap quick service issue Sonic (SONC), which operates drive-ins across the United States, notched 25% share-earnings growth in its fiscal fourth quarter (ended August 31st), and it appears as though 15% bottom-line growth is in the cards for fiscal 2014. Again, same-store sales gains were robust during the summer months, and more top-line advances are likely forthcoming. Investors have been impressed with the company’s recent turnaround efforts, and the price of SONC more than doubled in 2013. Also, November-period results recently came in ahead of expectations due to a slight drop in costs.
Shares of Jack in the Box (JACK) have been heading north, too, thanks to a steady string of reasonably strong earnings releases. The most recent announcement highlighted the fiscal fourth quarter (ended September 29th), which was kind to both the namesake hamburger chain as well as the company’s Mexican concept (Qdoba). Investors have been snapping up shares of JACK, too, and the stock gained more than 75% in 2013.
Chipotle Mexican Grill (CMG) has been the darling of the fast casual subsector almost since the day the chain was spun off from McDonald’s (MCD - Free McDonald's Stock Report). The chain disappointed investors on the earnings front, as third-quarter profits failed to live up to Wall Street’s high expectations. However, share earnings were still up 17% in the period, thanks to higher traffic and a bevy of new storefronts, and the chain’s immense growth potential remains the talk of the town. CMG stock, meanwhile, has just about doubled over the past 12 months.
The year just completed was very kind to Red Robin Gourmet Burgers (RRGB) and its shareholders. The restaurant chain was on pace to report a 14% bottom-line advance for the year, thanks to rapidly increasing same-store sales. RRGB shares more than doubled in 2013.
Buffalo Wild Wings (BWLD) is another casual dining participant that has enjoyed tremendous success in 2013. The company is benefitting from a combination of increasing same-store sales and lower chicken prices, which is pushing earnings markedly higher. BWLD stock, meanwhile, more rose more than 100% in 2013.
Starbucks (SBUX) put together another fine fiscal year (ended September 30th), as sales climbed 12% and profits were up 26%. Same-store comparisons were good, the rollout of new baked goods is going smoothly, and coffee prices have been trending lower. Investors have been applauding these developments, and the price of SBUX is about 50% higher now than it was 12 months ago.
Dunkin’ Brands Group (DNKN) has been holding its own in the space recently, despite the fierce competition from both national chains and local cafes. DNKN stock climbed 45% in 2013. Similarly, the turnaround efforts at Krispy Kreme Doughnuts (KKD) seem to be going full speed ahead at this point, and KKD stock rose 110% in calendar 2013.
Biglari Takes Aim at Cracker Barrel
Cracker Barrel Old Country Store (CBRL) is another casual sit-down restaurant operator that has enjoyed the past 12 months. The company’s sales and earnings were decent in fiscal 2013 (ended August 2nd), and its stock rose more than 70% between January and December. Still, despite the recent rise, Sardar Biglari has taken an interest in the chain. The activist investor, who currently owns nearly 20% of the company through his Biglari Holdings (BH), chided management in an open letter in December and pushed for a sale, preferably to him. Cracker Barrel’s management has vowed to continue operating the company as usual, refusing to put the company on the block, and Mr. Biglari has said he intends to force shareholders to vote on the subject as soon as possible.
At the time of this article’s writing, the author did not have positions in any of the stocks mentioned.