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Stocks enter bear territory and restaurants go right with it

Shares of restaurant companies have lost nearly a quarter of their value so far this year amid higher interest rates and recession fears. Winners remain few.
stock market restaurants
Photograph: Shutterstock

Stocks had another brutal day on Monday as investors worried about the potential of rising interest rates pushing the economy into a recession.

Restaurant stocks have gone right along with them. The average restaurant stock lost more than 4% of its value through early afternoon trading on Monday and has declined by 9% over the past week.

That has continued what has been an ugly year thus far for the industry’s publicly traded companies. The typical restaurant has lost nearly a quarter of its stock price.

Restaurants have generally fared worse than broader stock indexes. The S&P 500 was down 3% on Monday and the Nasdaq Stock Exchange lost  4% of its value. For the year, the S&P is down more than 16%.

The recent volatility followed the Federal Reserve’s decision last week to raise its benchmark interest rate by a half point. The Fed also signaled more hikes were coming as it works to get inflation out of the system. Soaring labor costs and other issues have led to steeply higher prices—the consumer price index is up 8.5% over the past year.

Investors are now worried that these aggressive rate increases could lead to a recession.

Only five companies are up so far this year: Arcos Dorados Holdings, the McDonald’s franchisee in Latin America, Steak n Shake owner Biglari Holdings, Outback Steakhouse owner Bloomin’ Brands, Potbelly and Dave & Buster’s.

Dave & Buster’s in particular struggled during the pandemic and has seen a strong sales recovery since, even if it hasn’t quite reached 2019 levels.

By contrast, investors have hit some pandemic darlings hard. Wingstop, the Dallas-based chicken wing chain, has lost more than half its value this year. It is down 14% over the past week. Domino’s Pizza is down 41% and Papa John’s is down 37% despite otherwise strong performance.

Of the 15 worst performing stocks so far this year, 13 are limited-service restaurants and only two (Denny’s and Red Robin) are full service. In contrast, seven of the 15 best performing stocks are full-service concepts.

Generally, full-service restaurants have performed better than fast-food concepts, though that is not saying much. Full-service restaurants have averaged a 18% stock price decline this year, compared with a 31% decline at fast-casual restaurants and a 24% decline at quick-service chain operators.

Stock market volatility has already held back several restaurant companies from going public this year. All five companies that went public last year are down so far in 2022. 

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