There's rarely a dull moment in restaurant land these days, so let's discuss a few of the more interesting things that are happening.
First, the dust continues to settle on Chipotle Mexican Grill (CMG) , which, over the past year has gone from can-do-no-wrong darling, to goat, following the E. coli outbreaks at several stores and slowing growth.
Chipotle's fourth quarter was rough -- revenue came in slightly below expectations, and earnings ($0.55) missed consensus estimates by $0.02. Same-store sales were also disappointing, down 4.8%.
While much of the damage was done early in the quarter, and December showed great improvement, investors had become accustomed to solid growth quarter after quarter. Chipotle is still one of the greatest recent restaurant concepts -- a simple menu, very fresh food, high margins (typically) -- but there appears to be a shift under way.
Although there's still room for expansion, Chipotle's most intense growth appears to be behind it. In addition, input costs are rising. Still, the stock trades at 35x 2018 consensus EPS estimates, which appears pricey at this point in the company's history. As beaten down as the stock has been, a little of that old Chipotle magic still appears to be cooked in.
Then there's Ruby Tuesday (RT) , which can seemingly do nothing right, ever. It is once again, priced for death -- a chain that owns the real estate for 300 locations, some of which it is selling and that has an enterprise value of $295 million. At this level, the market is saying that the company is worth more dead than alive, and this is not the first time that's happened.
In an effort to revitalize the brand, Ruby Tuesday is advertising its new "Endless Garden Bar." The ads are actually among the best the chain has ever done (in my view), but the question is whether it will bring in the customers. For its part, the market is weighing in and does not think this new strategy will work. Time will tell.
Then there's Buffalo Wild Wings (BWLD) , which also reported a rough fourth quarter, missing on revenue ($494.2 million versus $514.4 million consensus), and earnings ($0.87 vs. $1.27 consensus). Same-store sales were down 4% at company owned locations and 3.9% at franchised locations. Notably, cost of sales rose 160 basis points, primarily due to the price of chicken wings, which increased nearly 10%.
And therein lies one of the concerns with the sector as a whole -- the rising cost of inputs. The biggest costs to restaurants are labor and materials, and with the prospect of increases in one or both, investors should beware. Ultimately, the costs will be passed onto the consumer, or margins will suffer.
In the ever-increasing competitive restaurant landscape, which has seen its supply grow over the past several years, the consumer has the ultimate choice about whether to spend his or hard-earned money dining in or dining out.