Supersized restaurant valuation gaps due to shrink
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Sharon Lam
TORONTO, Feb 21 (Reuters Breakingviews) -When hungry U.S. consumers are tightening their belts, a $2 burrito from Taco Bell starts to look more appetizing than the $12 one from Chipotle Mexican Grill CMG.N. With diners increasingly confronting such spending decisions, fast-food joints should be the healthier choice for investors.
Americans spent about $95 billion at restaurants and bars in January, a 25% increase from a year earlier, according to advance data from the U.S. Federal Reserve. Purveyors of cheaper fare have benefited. McDonald’s MCD.N, for example, reported a 12% rise in sales at locations open for at least 13 months in the fourth quarter.
Yum Brands YUM.N boss David Gibbs said his Taco Bell, Pizza Hut and KFC chains served more higher-income customers, and the Cheesy Gordita Crunch vendor also slightly increased its operating margin, despite rising labor and ingredient costs. By contrast, the comparatively more upscale Chipotle improved its operating margin, but fell short of what analysts were expecting. Taco Bell’s profitability, at 32%, also was more than twice as high as Chipotle’s in the fourth quarter.
Dining habits typically change when the economy slows. Although Americans ate less at sit-down restaurants through the global financial crisis, fast-food consumption trends largely stayed the same, the U.S. Department of Agriculture found. What’s more, those with jobs were more likely to buy cheap burgers and chicken nuggets after the recession.
Restaurant valuations suggest that investors consider any uplift temporary. More casual eateries Chipotle and Starbucks SBUX.O fetch a respective 38 times and 29 times net profit for the next 12 months, according to Refinitiv, a roughly 40% premium to where McDonald’s, Yum Brands and Wendy’s WEN.O trade.
Although many eateries have swallowed some of their increasing expenses to keep menus enticing, ones slightly higher on the food chain may have less wiggle room. Restaurants jacked up prices 8.4% in the third quarter, the highest rate since 1981, according to Morningstar analysts, but that level of flexibility will be harder to sustain.
Chipotle, for one, signaled it doesn’t plan to charge customers more. If input cost increases have peaked, that may be possible. At the same time, U.S. consumers have spent a substantial portion of the savings they built up during the pandemic. The longer that fears of an economic downturn persist, the more that supersized restaurant valuation gaps should shrink.
Follow @sharonlam_ on Twitter
CONTEXT NEWS
Shake Shack said on Feb. 16 that fourth-quarter sales at domestic company-operated stores open at least 24 months rose 5.1% from a year earlier.
Yum Brands said on Feb. 8 that fourth-quarter sales at locations open for at least a year increased 6% from the same period in 2021. Chipotle said on Feb. 7 that restaurant sales increased 5.6% at sites open at least 13 months over the same span.
McDonald’s said on Jan. 31 that sales increased more than 12% at stores open at least 13 months for the fourth quarter.
Editing by Jeffrey Goldfarb and Streisand Neto
Activos relacionados
Últimas noticias
Descargo de responsabilidades: Cada una de las entidades de XM Group proporciona un servicio de solo ejecución y acceso a nuestra plataforma de trading online, permitiendo a una persona ver o usar el contenido disponible en o a través del sitio web, sin intención de cambiarlo ni ampliarlo. Dicho acceso y uso están sujetos en todo momento a: (i) Términos y Condiciones; (ii) Advertencias de riesgo; y (iii) Descargo completo de responsabilidades. Por lo tanto, dicho contenido se proporciona exclusivamente como información general. En particular, por favor tenga en cuenta que, los contenidos de nuestra plataforma de trading online no son ni solicitud ni una oferta para entrar a realizar transacciones en los mercados financieros. Operar en cualquier mercado financiero implica un nivel de riesgo significativo para su capital.
Todo el material publicado en nuestra plataforma de trading online tiene únicamente fines educativos/informativos y no contiene –y no debe considerarse que contenga– asesoramiento ni recomendaciones financieras, tributarias o de inversión, ni un registro de nuestros precios de trading, ni una oferta ni solicitud de transacción con instrumentos financieros ni promociones financieras no solicitadas.
Cualquier contenido de terceros, así como el contenido preparado por XM, como por ejemplo opiniones, noticias, investigaciones, análisis, precios, otras informaciones o enlaces a sitios de terceros que figuran en este sitio web se proporcionan “tal cual”, como comentarios generales del mercado y no constituyen un asesoramiento en materia de inversión. En la medida en que cualquier contenido se interprete como investigación de inversión, usted debe tener en cuenta y aceptar que dicho contenido no fue concebido ni elaborado de acuerdo con los requisitos legales diseñados para promover la independencia en materia de investigación de inversiones y, por tanto, se considera como una comunicación comercial en virtud de las leyes y regulaciones pertinentes. Por favor, asegúrese de haber leído y comprendido nuestro Aviso sobre investigación de inversión no independiente y advertencia de riesgo en relación con la información anterior, al que se puede acceder aquí.
