Negative data continues to point to difficulties in restaurant land. On Monday, Black Box Intelligence reported that same-store sales for September were down 1.1%, representing the fourth straight decline. Likewise, same-store traffic fell 3.5% versus last September.
We certainly are seeing the fallout within restaurant names. A basket of all publicly traded U.S. restaurant stocks (regardless of size) that I track is in negative territory, down about 9% year to date on a total return basis. During the same period, the S&P 500, Russell 2000 and Russell Microcap indices are up 6.6%, 8.7% and 6.7%, respectively. Granted, there are several, smaller challenged names within that restaurant basket, including Cosi (COSIQ) , which not unexpectedly filed for bankruptcy and is down 93%.
The Big Five chains of McDonald's (MCD) (down 4.2%), Yum Brands (YUM) (up 20.6%), Chipotle (CMG) (down 15.6%), Darden (DRI) (up 2.1%) and Domino's Pizza (DPZ) (up 49.7%) are up an average of 10.5% year to date, but that performance is heavily skewed by Domino's.
My current restaurant exposure is confined to a few special situations, and some of them are not pretty. I've continued to nibble at Ruby Tuesday (RT) and am perhaps surprisingly in positive territory with that position. The markets believe that the name is all but dead and has priced it accordingly. Two weeks ago, shares dipped all the way to $2.09 intraday in reaction to a bad quarter, which in reality had already been pre-announced. The shares are now back above $3. The future is certainly not bright for RT, but it remains asset-rich, and hated by investors. That's an interesting combination.
I recently took a position in Bob Evans (BOBE) , which is being pushed by an activist to separate its food products business from its restaurant business. The sum of the parts here may be worth more than the whole.
I continue to hold Luby's (LUB) , which has been a lesson in frustration, and I am starting to doubt whether any value will ever be realized there. Other exposure is via Biglari Holdings' (BH) 20% stake in Cracker Barrel (CBRL) and ownership of Steak 'n Shake.
I've flirted with Zoe's (ZOES) , which I believe is one of the more interesting newer restaurant concepts, but have been unable to pull the trigger. That's despite a 42% pullback since August. I just can't get comfortable paying 121x next year's consensus estimates in an environment where valuations should be compressing.
Speaking of valuation compression, a new name on my radar, courtesy of recently being named the top-rated steakhouse chain by Consumer Reports, is Fogo de Chao (FOGO) . Shares are down 55% since going public in June 2015 -- not an uncommon story for the bevy of recent restaurant initial public offerings. What's interesting about FOGO, however, is that it trades at 10x trailing earnings and 12x next year's consensus. It also boasts solid double-digit net profit margins and trades at 1.17x book value per share. I'll be digging into this one more this weekend. It might be a bit too high-quality for my portfolio of restaurant misfits.