Has the shakeout in restaurants begun? I think the stocks are indicating that it has.
We are seeing some stocks just pull away from the pack the way racehorses separate themselves from the field. Perhaps it is an uneven distribution of the impact of cheaper gasoline -- the disproportionately less wealthy, spending more -- or maybe it is the relative value of some chains vs. others or just some self-help really kicking in, the winners are creating some dazzling outperformance.
First winner? The obvious disrupter: McDonald's (MCD). Once derided as a silly idea, the breakfast-all-day concept has rocked this quick-serve world. Plus, CEO Steve Easterbrook has outlined a value package that has the franchisees -- the ones who really control things -- drooling with possibilities. Jack-in-the-Box (JACK), Popeyes (PLKI) and even DinEquity (DIN) is feeling the wrath of a rejuvenated McDonald's, with the former just completely blindsided by Easterbrook's prowess.
Next, I still can't believe that Domino's (DPZ) was able to deliver double-digit comps on top of some really amazing comparisons. What's behind it? The endless technology rollout plays a real role with the ease of ordering and delivery (including warming trucks) doing some incredible damage to the mom-and-pops out there that can't possibly compete. The fact that prices have not gone up in five years is entirely indicative of the value proposition. It's just winning, although the stock's outsized move vs. say, McDonald's, does say "wait a moment for a comeback."
I had an interesting interchange with some of the dwindling numbers on Twitter this weekend that was quite telling. Most cannot figure how in heck Chipotle (CMG) was able to go from $400 less than two months ago to $529 despite the e coli outbreak. But they underestimated two things: the balance sheet of Chipotle that allowed the company to take a tremendous amount of stock in and the long-term value of fresh and organic. The company simply hasn't lost any of the millennials. Take it from me as a restaurateur, as the "C" letters come down from the windows in New York City and the rest of the country puts e coli in the rearview mirror, the same-store sales are going to come roaring back. The company's average price for stock isn't that much below here. I still think it is a buy, even as it is up more than 100 points from the depressed moment although, again, a selloff's a more game place to put money to work.
Yum! Brands (YUM) is all breakup and it still hasn't moved enough. The separation of the China and rest-of-world businesses may not be ideal for timing because of the decline in Pizza Hut in China, but the rest of world has become quite strong and the company's cash flow is bountiful and being put to use to buy a ton of stock. People should stop underestimating CEO Greg Creed and get on board as the company's worth a minimum of $90.
Then there's Panera (PNRA). No matter what CEO Ron Shaich had to say about how strong Panera 2.0 really is in terms of uplift, no one seemed to believe (besides those of us at Action Alerts PLUS, frankly) that this redo is for real. But when we saw the numbers last quarter they showed a dramatic, no, super dramatic increase in comparable-store sales. I got to interview Shaich after the quarter and his enthusiasm was as infectious as the numbers themselves.
It is true that retail's been very hard to divine. Only value seems to be working. Everything else seems to be in the crosshairs of Amazon (AMZN), with the exception of Target (TGT), which seems to have really gotten is mojo back,
But restaurants? Wow! Some just have so much game. They are all worth your dollars, many right here and the rest on a pullback.