There has been a lot of debate about whether there is a labor shortage, especially in certain industries such as restaurants, due at least in part to increased unemployment benefits. I saw evidence over the past couple days that suggests it's true, albeit through a very small sample size. Ill-fated visits to Cracker Barrel Old Country Store (CBRL) locations in two areas of Pennsylvania yielded the same results -- wait times of 30 to 40 minutes at restaurants that were visibly understaffed. At the first location, the reason for the wait (lack of staff) was actually stated by the hostess.
The good news is that folks are out and about again and crowding the restaurants. After our second failed Cracker Barrel attempt last night, we found an Olive Garden, owned by Darden Restaurants (DRI) , with a shorter wait time. This place was packed, and this was on a Tuesday at 5 p.m. in central Pennsylvania, somewhat in the middle of nowhere.
For their part, publicly traded restaurant stocks are having a heck of a run in 2021 A basket of 40-plus restaurant names with market caps above $100 million are up an average of 42% year to date versus 13% for the S&P 500, 19% for the Russell 2000 and 33% for the Russell Microcap Index.
However, the big names are not the ones doing the best so far in 2021. Indeed, the "Big Five" -- a self-coined group that includes McDonald's (MCD) (up 9.6%), Chipotle Mexican Grill (CMG) (down 3.6%), Yum Brands (YUM) (up 10.6%), Domino's Pizza (DPZ) (up 15.9%) and Darden (up 19.2%) are up an average of just over 10%.
It turns out that smaller names, some of them lower quality, are doing the best. Top performers year to date include The ONE Group Hospitality (STKS) (up 208%), BBQ Holdings (BBQ) (up 204%), Kura Sushi (KURA) (up 111%) and FAT Brands (FAT) (up 99.5%). Potbelly Corp. (PBPB) (up 87.7%), Red Robin Gourmet Burgers (RRGB) (up 76.8%) and Noodles & Co. (NDLS) (up 67%) are names that have faced big challenges yet are in the top 10.
The industry faces several questions and potential headwinds at this point, including the labor shortage, potential for increased wages, rising food costs and the extent to which consumers will be willing to wait longer and pay more.
The "cheapest" names on a two-year forward price-to-earnings ratio basis include Bloomin' Brands (BLMN) (11.3x), Brinker International (EAT) (11.5x), Dine Brands Global (DIN) (11.7x), Jack in the Box (JACK) (15.7x) and the aforementioned Cracker Barrel (16.4x). For their part, the "Big 5" currently trade at an average of about 24x their two-year forward earnings.
Restaurant stocks have made a heck of a comeback in 2021, potential headwinds notwithstanding.