What a year 2019 has been for the markets, especially large caps. The restaurant sector, however, has not been as fortunate. A basket of 39 restaurant names I track (minimum market cap $100 million) are up an average of about 11% year-to-date, well off the pace of the S&P 500 (+31.2%), Russell 2000 (+26.2%) and Russell Microcap (+23.2%). Competition remains fierce in the seemingly crowded publicly traded restaurant landscape, and 2019 simply has not been a banner year for a sector that has been on fire for much of the decade.
The "Big Five" (a self-coined term) - consisting of McDonald's Corp. (MCD) (up 13% year to date), Yum Brands (YUM) (+11%), Darden Restaurants (DRI) (+12%), Chipotle Mexican Grill (CMG) (+92%) and Domino's Pizza (DPZ) (+18%) - are up an average of about 29%, still below the S&P 500's performance. That return is also skewed by the performance of CMG, which somewhat quietly put on a great show while regaining all of the luster it lost in recent years. CMG hit an all-time high in 2019, and trades at a lofty 46x next year's consensus estimates.
Papa John's (PZZA) has been no stranger to controversy over the past couple of years. CEO and face of the company John Schnatter resigned in July of 2018, and the stock is up 64% year-to-date, the third best performer in the sector. PZZA came on strong late in the year, generating all of its performance since August. Up until then, it was flat for the year. PZZA trades at about 42x next year's consensus estimates.
Performance of my favorite chain, Cracker Barrel (CBRL) (+3%), was disappointing. Despite beating consensus estimates the past two quarters, shares cooled off since hitting a high for the year in July. Some of the pressure on shares this year may been caused by Biglari Holdings (BH) (BH.A) having sharply reduced it's CBRL stake from 18.7% this time last year to the current 8.3%. Taking a stake in CBRL has been one of the few successes for BH in the past several years. CBRL currently trades at about 15.5x next year's consensus estimates, and yields 3.3% (5.2% if you include the "special" dividend the company paid in July, not so "special" any longer, given that it's the fifth consecutive year the company has paid one).
The worst performers for the year include Potbelly (PBPB) (-46%), Fiesta Restaurant Group (FRGI) (-36%), Carrols (TAST) (30%), and BJ's (BJRI) (-27%).
One noted newcomer, Kura Sushi USA (KRUS) , which went public in August at $14/share, has seen its shares more than double to $28.76 (as of Tuesday), making it this year's top performing restaurant name due to a December surge. KRUS trades at about 53x next year's consensus estimates, but is a fairly rare example of a restaurant IPO that is profitable in its first year. The company earned 15 cents in its first reported quarter last month since going public, beating the 13 cent consensus estimate. This is likely not the last we've heard of publicly traded sushi restaurants.
