Restaurant stocks ended the year on a good note, turning what might have been an irritatingly bad year into a strong one.
The median restaurant stock last year increased 21%. Much of that came since early October, when the typical stock rose just less than 18%, according to Restaurant Business calculations.
The performance was mostly in line with the broader stock market. The S&P 500 index finished 2023 up 24%. The Dow Jones Industrial Average was up 14%. But the Nasdaq index was up 43% for the full year.
The improved stock performance followed weak overall results in 2022, which was driven by inflation and increased interest rates.
Much of investors’ love in 2023 was directed at fast-casual restaurants. The median fast-casual concept rose 53% last year. And that does not include Cava, one of two initial public offerings in 2023 that has nearly doubled since its debut, up more than 95%.
Investors were also somewhat surprisingly more bullish on casual dining restaurants than on fast-food concepts.
The median casual dining company’s stock increased 35% last year. By comparison, QSR company stocks increased 19%.
Then again, fast-food companies largely kept their values coming out of the pandemic, while casual dining restaurants were more likely to have lost value. As such, casual diners had more to gain.
The end-of-year performance for industry stocks comes as sales for many restaurants have held serve despite a host of concerns about the state of the economy. Profitability, too, is improving as the industry gets the benefit of price hikes while labor and food costs have stabilized.
Maybe the best example of this comes from the top performing industry stock of 2023 and its only franchisee: Carrols Restaurant Group, the operator of more than 1,000 Burger King restaurants.
Carrols stock finished 2023 up 479%. Slowing inflation, improving sales and stronger profits brought the company’s shares back from the brink. Red Robin stock, meanwhile, more than doubled.
The fast-casual sector, however, featured many of the industry’s strongest performers, such as Potbelly, whose stock rose 87% last year, and Wingstop, which impressed investors with strong sales to the tune of an 86% stock price increase.
On the other hand, another fast-casual chain in Noodles & Co. was the biggest decliner of the year. Its stock fell 43% amid a difficult sales slump that appeared to surprise executives this year.
Sales struggles also pressured the stocks of Dine Brands (down 23%) and Cracker Barrel (down 19%).
The improving performance of restaurant stocks will likely accomplish a few goals, namely helping to convince more companies to go public in 2024. Cava’s near doubling of its valuation may likely make an IPO tempting for more sponsors, though it’s notable that the year’s other offering, Gen Korean BBQ, declined 35% since its IPO.
Still, companies like Panera Brands apparently plan to take that step this year.
It may also help spur an improvement in the overall market for restaurant mergers and acquisitions. Companies like Tropical Smoothie and Chuck E. Cheese operator CEC Entertainment have apparently been put up for sale, signaling an improved market.