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
면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.
온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.
이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.
