Analysts Point to Bright Spot for Restaurants

Christina Rexrode of Bloomberg Business reports: High prices for gasoline and food and the lingering effects of the Great Recession aren't good news for restaurant chains, but two KeyBanc analysts say there's good news, too.

 

In a note to clients Tuesday morning, analysts Brad Ludington and John Dravenstott noted that their stock index of 39 restaurants is up 12.5 percent since the beginning of the year, versus 5.8 percent for the S&P 500.

 

While the jobless rate isn't as low as anyone would like it to be, it does bring one benefit to restaurants: lower employee turnover. Also, restaurants have done a good job of handling rising commodities costs, the analysts said, and even a small drop in gas prices can encourage people to spend money on eating out.

 

People are still willing to pay for a restaurant meal if they can get quality and a distinct experience, the analysts said.

 

Chains like The Cheesecake Factory Inc., Cracker Barrel Old Country Store Inc. and Ruby Tuesday Inc. could benefit from the return of business travel. High-quality fast-food chains like Chipotle Mexican Grill Inc., Panera Bread Co. and privately held Five Guys Burgers and Fries have opened new stores that have been well received. And even fast-food restaurants are promoting their more-expensive items rather than just the value meals.

 

Meals out still offer entertainment and convenience that people are willing to pay for, and there is potentially less money to be saved by cooking at home if grocery prices keep rising, the analysts said. As the job market recovers, people will have more money to eat out and less time to cook.