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Restaurant stocks traded lower on Tuesday as investors and analysts showed some anxiety on how the Q2 earnings season may play out amid more signs that consumers are holding back in certain discretionary categories. The Dow Jones US Restaurants & Bars Index (DJUSRU) was down 1.68% at 2:40 p.m.
Baird analyst David Tarantino said the recent downward momentum will be worth monitoring closely in the coming weeks due to continued concerns about the economy and the possibility that some newer headwinds on consumer confidence have emerged amid an increasingly uncertain political backdrop. Notably, Baird’s data showed that casual dining comparable sales in the most recent week were -6%, which was below the -3% level for June and Q2 overall. The fast-casual segment saw sales growth fall to +1% year-over-year from a pace of +3% in the prior week.
KeyBanc Capital Markets analyst Eric Gonzalez warned that investor sentiment is poor on global fast food names and expects the earnings season to be underwhelming. “We believe several brands within our coverage universe are at risk of missing consensus same-store sales forecasts for the 2Q,” he stated. That list of expected underperformers included McDonald’s (NYSE:MCD), Burger King (NYSE:QSR), Wendy’s (WEN), Starbucks (SBUX), KFC U.S. (NYSE:YUM), Papa Johns (PZZA), and Applebee’s (DIN).
Earlier on Tuesday, Gordon Haskett cut its price target on McDonald’s (MCD) due to a softer-than-anticipated initial customer response to the chain’s $5 Meal Deal. Analyst Jeffrey Farmer highlighted that the comparable to a year ago was tough since it lapped the Grimace Shake that was launched on June 12, 2023, and generated intense social media interest. Notably, the Grimace promotion generated 3 billion views on TikTok, which was a major marketing win for the chain. Farmer thinks McDonald’s (MCD) will see a 0.5% decline in U.S. comparable sales for Q2 this year without the Grimace boost. That could be a jolt to investors looking for a positive comparable sales mark.
Decliners in the restaurant sector included Sweetgreen (NYSE:SG) -6.4%, Brinker International (EAT) -5.8%, Noodles (NDLS) -5.4%, Red Robin Gourmet Burgers (RRGB) -5.3%, Bloomin’ Brands (BLMN) -4.9%, First Watch Restaurant Group (FWRG) -4.8%, CAVA Group (CAVA) -4.5%, Jack in the Box (JACK) -4.5%, Chipotle (CMG) -3.8%, and Domino’s Pizza (DPZ) -3.8%.