Wall Street is in love with fast-casual restaurant chains again.
Stocks of fast-casual chains have thrived so far this year, easily standing out in what has been a lackluster market for restaurant stocks in the first three months of 2024.
The median share price for fast-casual chains has increased 27% so far this year, according to Restaurant Business calculations. Overall, restaurant stocks are up less than 2% on the year, well below the 11% increase of the S&P 500 Index.
This time, the difference is rooted in performance. Fast-casual chains have generated stronger sales on average than other sectors, and many brands have outperformed their expectations.
(Check out RB’s Same-Store Sales Tracker.)
Quick-service and casual-dining chains both face uncertainty and performance concerns. Casual-dining chains have generated weak sales overall and many concepts face long-term questions as consumers flock to convenience-oriented concepts or higher-end, experiential brands.
That’s reflected in the weak performance of brands like Red Robin (down 39% year to date) and Denny’s (down 18%).
Traditional fast-food chains, on the other hand, are weathering a consumer concerned about prices while California’s $20 fast-food wage rules take hold. That could be seen in the performance of Jack in the Box (down 16%).
To be sure, there were plenty of strong performers in each of the sectors. In the casual dining sector, Kura Sushi (up 51%) was one of the best-performing stocks of the quarter, as was Gen Korean BBQ (up 49%). Chain collector Fat Brands, which mostly operates fast-food chains, is up 25% this year. But most of the big names, including Wendy's, Starbucks and McDonald's, are down.
And the fast-casual sector has had some weak performers, too, notably Noodles & Co., whose stock is down 39% so far this year and which faces major question marks going forward.
Noodles was one of the leading chains of the fast-casual boom a decade ago, when investors flocked to any kind of higher-quality limited-service chain in the hopes of finding “the next Chipotle.”
Its stock more than doubled in its 2013 IPO, and investors pumped all kinds of chains with sky-high valuations, hoping to catch gold. There were downmarket effects, too, as private equity and venture capital firms flocked to upstart fast-casual chains. The result left many disappointed, as brands like Noodles, El Pollo Loco and Habit failed to live up to the lofty expectations.
Many of the chains that have thrived this year emerged out of that era, however. Sweetgreen’s stock has doubled so far this year as its robotic restaurants perform well. Cava, which may have reinvigorated interest in the sector with its successful 2023 IPO, is up 65% this year.
Then there’s the OG, the original Chipotle, which announced a remarkable 50-for-1 stock split, which pleased investors to the tune of a 27% increase.