By my count, 22 restaurant names have announced their most recent quarterly results since July 13, and all 22 had at least one thing in common -- they all beat consensus earnings estimates. In addition, all but one, Potbelly Corp. (PBPB) , also exceeded revenue estimates.
As remarkable as that may seem, there are reasonable explanations for this "phenomenon." In my view, the analyst community tempered expectations with good reason. For many companies, the quarter began on March 31, and at that point about one in six U.S. residents were fully vaccinated. While things were looking up in terms of the pandemic, there was still uncertainty. There was also a great deal of pent-up demand among consumers, many of whom had not eaten in a restaurant for a year. The quarter ended on June 30, and by then nearly 47% of Americans were fully vaccinated and about 55% had at least one shot.
The combination of lower expectations and pent-up demand made for what appeared to be a good quarter for the industry.
Last week alone, 10 restaurants announced earnings. Here are some of the highlights from a variety of restaurant types:
- Fine dining's Ruth's Hospitality Group (RUTH) announced second-quarter earnings per share of 36 cents, 12 cents ahead of consensus estimates. Same-store sales were up 287% year over year and up 5% versus 2019. Of note, beef costs increased 27% year over year. RUTH currently trades at 14x next year's consensus estimates.
- Casual dining's Dine Brands Global (DIN) , parent of Applebee's and IHOP, had second-quarter earnings of $1.94, which were 27 cents ahead of the consensus. Applebee's same-store sales rose 102% year over year while IHOP comps climbed 120%. Off-premise dining accounted for 30% of Applebee's sales and 26% of IHOP sales for the quarter. Net debt fell from $1.35 billion to $1.205 billion year over year. DIN trades at about 10.5x next year's consensus estimates.
- Sandwich shop Potbelly, which has struggled in recent years, reported a second-quarter loss of 10 cents from continuing operations, better than the expected 17-cent loss. However, revenue of $97.49 million missed the consensus mark by $2.36 million. PBPB is expected to lose nine cents a share next year. Performance-wise, shares are up 63% year to date, but Potbelly clearly has a difficult road ahead.
- Cult stock burger name Shake Shack (SHAK) reported second-quarter earnings per share of five cents, which was 12 cents ahead of consensus. Same-store sales (which the company reports as "same-Shack sales") rose 52.7%. SHAK opened eight company owned locations and 10 licensed locations during the quarter. SHAK currently trades at 237x next year's consensus estimates and 118x 2023 estimates.
From here, things could get a bit more interesting. Pent-up demand is still a factor, but so are labor shortages, rising input costs (see the section on RUTH) and the uncertainty of the latest resurgence of the virus. There's never a dull moment in the restaurant space.