Tuesday was an interesting day in restaurant land. The sector has been enjoying a seemingly incredible rally early in 2023, but one that has been highly concentrated in small names.
For the year to date, a basket of 40-plus restaurant names I follow are up an average of about 24%. Meanwhile, the Big Five -- a self-coined group that includes McDonald's (MCD) (up 9% year to date), Chipotle Mexican Grill (CMG) (up 24%), Yum Brands (YUM) (up 3%), Domino's Pizza (DPZ) (down 4%) and Darden Restaurants (DRI) (up 13%) -- are up an average of about 9% year to date. Backing out the Big Five, the remaining restaurant stocks are up an average of about 25.5%.
A couple of the small guys enjoyed big days Tuesday. Kura Sushi (KRUS) jumped 28% under what I consider unusual circumstances.
On Monday, after the market close, Kura Sushi announced a secondary offering of 1.1 million shares. That's typically negative news for existing shareholders due to dilution, but more importantly, the offering price is both relative and relevant to the current share price.
The offering was priced at $54 a share, or slightly more than $3 below Monday's closing price. As you might expect, Kura Sushi shares fell in after-hours trading. But rather than falling to the level of the offering price or even lower on Tuesday, KRUS shares blasted off that day, gaining nearly $16 a share to close at $72.97.
If you are scratching your head over that action, as I did when I first saw it, you are not alone. However, there may be a reasonable explanation. Short interest in Kura Sushi shares is just above 27%, so this could some good old-fashioned short covering, but under odd circumstances.
It was just last week (April 4, after the market close) that Kura Sushi announced a smaller-than-expected second-quarter loss (a 10-cent loss versus a 22-cent loss consensus) on higher-than-expected revenue ($44 million versus $42 million consensus). The following day, the shares dropped 16%, the reasons for which are unclear. It all adds up to odd behavior for the stock of Kura Sushi, the shares of which are up 54% year to date.
Elsewhere, sandwich shop Potbelly Corp. (PBPB) , which appears to be on the third or fourth of its nine lives, jumped 10.5% Tuesday to a four-year high. Potbelly announced preliminary first-quarter data that was better than previous company guidance. Same-store sales are expected to be up between 22% and 22.3%, ahead of the expected range of 18.5% to 20.5%. In addition, adjusted EBITDA also is tracking higher, now in the range of $5.2 million to $5.6 million, up from previous guidance of $4 million to $5 million. Potbelly shares are up nearly 69% year to date.
Stay tuned for more madness in restaurant land.
