The stock market loses its taste for fast food

Portillo’s stock, like many other newly public companies, has struggled this year./Photograph: Shutterstock

Investors fled stocks in the first quarter and especially on Thursday, when the Dow Jones Industrial Average plunged more than 500 points. Both the S&P 500 and the Nasdaq Stock Exchange fell more than 1.5%, ending a bad quarter on a sour note. Stocks recorded their first losing quarter since 2020 amid rising interest rates and fears of a recession.

Restaurant stocks have been hit especially hard this year. Most restaurant stocks were down on Thursday, none more so than newly public companies—particularly Dutch Bros, which fell nearly 11%, and Sweetgreen, which declined nearly 9%.

Investors have been particularly hard on restaurants so far this year, a likely combination of high valuations and concerns about inflation taking a bite out of profit margins. The median stock price performance of the more than 40 restaurant companies we track was a decline of 7.8%.

The S&P 500 Restaurant Index, meanwhile, is down more than 13% so far this year.

Fast food chains have had a tough time so far this year. The median quick-service restaurant chain is down more than 16% so far this year, according to Restaurant Business calculations.

The median fast-casual chain, meanwhile, is down more than 9%.

Casual dining, on the other hand, has fared comparatively well, down just more than 1%.

By comparison, the broader S&P 500 Index is down 5% for the year.

Casual dining outperforms a weak market

Source: Yahoo! Finance, Sentieo, Restaurant Business

Much of that difference could be a combination of valuation and expectations for a return to normal. Eight of the 14 top-performing stocks so far this year are casual dining chains—notably Dave & Buster’s, which is up 28% so far this year on its expected recovery.

Full-service operators Ruth’s Chris (15%) and Ark Restaurants (10%) are also performing strongly. But Cheesecake Factory, Red Robin, Dine Brands, Brinker International and Bloomin’ Brands are also up so far this year. Investors could anticipate a return to a more normal environment.

Casual-dining chains, however, were hit hard toward the end of 2021 as infections spiked, first from the delta variant and then omicron. So they began the year with diminished valuations and expectations.

Five top performers

Source: Yahoo! Finance, Sentieo, Restaurant Business

Fast-food chains, on the other hand, did poorly. Only one of the 13 worst-performing stocks is a casual dining company and the rest were either quick-service or fast-casual. The four companies whose stock prices are struggling the most are all fast-casual companies, including the newly public Portillo’s, Noodles & Co., and Fiesta Restaurant Group.

Wingstop, the chicken wing chain that thrived during the pandemic, has been hit hard by investors so far this year, its stock is down 32%. It is also losing its chief executive, Charlie Morrison, who is taking the top job at a little-known drive-thru salad concept.

Fat Brands, the owner of Johnny Rockets and Fazoli’s that bought some $1 billion worth of restaurant chains last year, has struggled this year amid concerns about an FBI investigation into its CEO, Andy Wiederhorn.

Five worst performers

Source: Yahoo! Finance, Sentieo, Restaurant Business

Domino’s (down 28%) is losing ground to competitor Papa John’s and is also seeing a CEO change with the retirement of Ritch Allison.

Newly public companies have also been hit hard. Portillo’s (down 35%), First Watch (down 22%), and Krispy Kreme (down 21%) have all lost much of their stock value. Sweetgreen (flat) and Dutch Bros (up 8.6%) have bucked that trend. Still, the weak performance of newly public companies has largely kept other companies from going public—the market for initial public offerings has all but frozen so far this year.

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