One of the calls I made for 2016 in my Jan. 5 prognostication column was that restaurants would have a difficult time this year. Restaurant stocks' performance has been "lights out" for several years, but all good things must come to an end (or at least a revaluation).
It's true that restaurants continued to soundly beat the S&P 500 early this year as energy prices remained in the dumpster, giving U.S. consumers a so-called "gasoline-tax cut." As of late March, the "Big Five" restaurant chains -- McDonald's (MCD), Yum! Brands (YUM), Chipotle (CMG), Darden (DRI) and Domino's (DPZ) -- were collectively beating the S&P 500 by some 600 basis points.
But while they're still ahead of the S&P 500, their outperformance was down to about 480 basis points for 2016 as of yesterday's close. In fact, a basket of all of publicly traded restaurant stocks (regardless of size) was actually trailing the broad market, down about 1% for 2016 vs. the S&P 500's approximately 1% gain.
Among individual restaurant stocks, the year's best performers as of yesterday's finish were an interesting mix of new kids on the block and old, battle-worn names.
Krispy Kreme (KKD) has been the top gainer so far in 2016, up about 40%. But much of that has come from JAB Holding's recent takeover bid for the company at $21 a share -- a price that I maintain is far too low.
Meanwhile, the sector's No. 2 performer could be its No. 1 surprise: Struggling casual-dining chain Cosi (COSI), which is up some 32% year to date. But since COSI trades for well under a buck these days, the stock is behaving more like an option.
COSI has hung on for a long time despite never having had a profitable year. It's not for lack of trying, as the company put up some decent same-store-sales numbers last quarter. But the chain still isn't operating in the black, and I continue to believe that COSI's days are probably numbered
Other big gainers in the restaurant sector include:
- Mediterranean-casual chain Zoe's Kitchen (ZOES), which is one of the most exciting new eatery concepts that I've seen in years. It's up roughly 32% in the year to date.
- Certain value plays with lots of real estate holdings. For example, casual-dining name Bob Evans Farms (BOBE) is up about 19% so far in 2016, while Cracker Barrel Old Country Store (CBRL) -- one of my all-time favorite chains -- is some 18% higher.
- Luby's (LUB), a forgotten name by most everyone except for yours truly. Best known for cafeteria-style restaurants that are primarily located in Texas, Luby's is up about 14% YTD. The firm also owns Fuddruckers, which I maintain sells the best burger of any publicly traded chain.
Conversely, Shake Shak (SHAK) is down about 8.5% so far this year even though it's perhaps the most-talked-about restaurant chain in years. (My Real Money colleague Brian Sozzi recently crowned SHAK as the "Next-Generation McDonald's.")
While Shake Shack has put up some great numbers, the stock's price still seems disconnected from reality to me. To be honest, I've yet to sample Shake Shak cuisine, but can it really be any better than privately held West Coast powerhouse In-N-Out Burger? I hope to eventually find out, but I understand that I might be waiting in line for quite a while.
Finally, one name that I continue to keep an eye on is real-estate-rich Ruby Tuesday (RT). This struggling stock has fallen roughly 25% so far this year to levels last seen in 2009. That's despite the fact that RT has less than half the debt load and 5x as much cash on the books as it had back then.