Ending the year with a whimper, it looks like Friday is the last time in 2020 that citizens of my state (Pennsylvania) will be able to enjoy indoor dining. A three-week ban goes into effect on Saturday, Dec. 12 at 12:01 a.m. on restaurants, gyms, and entertainment businesses, and also limits retail to 50% of capacity.
Whether this will help slow the pandemic remains to be seen, but it appears to be yet another power move on the part of our governor, and is a sad way to end the year, especially for the those who own and work in the restaurants and other affected businesses.
So today I pay homage to the restaurant industry. I wish I could write about all of our favorite mom and pop places, the ones that folks have been trying to help stay afloat by frequently ordering take out and tipping generously, but we have to focus on what's happening in the publicly traded space.
2020 has actually turned out to be decent for restaurant stocks. A basket of 40 or so that I follow are up an average of about 7.5% for the year. While the S&P 500 (up 15.5%), Russell 2000 (up 16.4%) and and Russell Microcap (up 18.5%) all performed significantly better, it is surprising that many restaurant names are even in positive return territory for the year under the circumstances.
On a total return basis, the best performer in 2020, is Chipotle Mexican Grill (CMG) (up 57.4%), which remained profitable (just barely in the second quarter) throughout the year, followed by Wingstop (WING) (up 57.1%), and Noodles (NDLS) (up 47%). NDLS, which has had its share of troubles in recent years, was a surprise, and managed to hold its own during the pandemic, and attracted some investors along the way.
The "Big Five," a self-coined term consisting of McDonald's (MCD) (up 7.8%), Chipotle (up 57.4%), Yum Brands (YUM) (up 7.6%), Domino's Pizza (DPZ) (up 32.2%), and Darden Restaurants (DRI) (up 7%) are up an average of just over 22%. So, it's been a very good year for the big guys.
Bringing up the rear as the worst performer is Red Robin (RRGB) (-37.4%), which had its own struggles prior to the pandemic, and saw its fortunes fall further. The company has lost money to varying degrees for the past five quarters and is not expected to be profitable for the next two years, according to consensus estimates. The company does own the real estate for 37 of its locations; five years ago, that would have been much more significant to me than it is now given a glut of commercial real estate.
Dave & Busters (PLAY) (-35.6%) the second worst performer, has had two consecutive quarters in the red, but is expected to return to profitability on an annual basis in two years (for the year ended 1/23). The company raised a significant amount of capital in the equity and debt markets during the pandemic, increasing shares outstanding by 48% (talk about dilution), and selling $550 million in senior notes in October, with the latter being used to pay off its current term loan and revolver.
I continue to keep an eye on Kura Sushi (KRUS) (-30.3%), the first pure-play on sushi. While I'm not a fan at all of that cuisine, I'm within what appears to be a small minority. KRUS has had four consecutive negative quarters, is not expected to be profitable in 2021 or 2022, and appears to trade on potential growth prospects. Its still too rich for my blood here, but could be interesting longer term, at the right price. Maybe that right price was the $5 and change it fell to early in the pandemic, hindsight being 20/20.
My thoughts are with all the restaurant and other small business owners and employees in my state that will see another interruption in their working lives starting Saturday morning. I'm hoping that we can continue to support them, and that there are brighter days ahead.
