Stock Performance
REASONABLE PROSPECTS FOR RESTAURANT STOCKS
It was a good month for QSR stocks (particularly Starbucks) with a median share price increase of +9%. We can see that Wall Street analysts are very bullish on fast food, with this sector benefitting from: an asset-light franchising model; “margin harvesting” – maintaining price increases while food & labor inflation starts to moderate; trade-down from FSR and higher-income consumers; and an improving ability to implement strategic pricing, passing along price hikes to those that can afford it while keeping the lower-income demo in the game with margin friendly value deals.
While FSR stocks have not fared as well during the last month, we can see that analysts also expect good things for their going forward financial performance. These names also stand to benefit from moderating food & labor costs against a backdrop of healthy employment levels. Dining out still represents an affordable luxury for cash-strapped but employed consumers. Notably, Cracker Barrel just lowered its revenue forecast for fiscal 2023 down from +7% to +8% to +6% to +8% (not a big deal), citing that inflation, low consumer confidence and a volatile macro environment will pose a short-term challenge.
Macro Forecasts
ECONOMISTS STILL HOPING FOR A SOFT LANDING
Despite aggressive rate hikes, economists still expect a soft landing for now. With GDP levels forecasted to approach zero growth at the beginning of the new year, they are expected to recover during 2H22 as inflation starts to subsidize. In any case, the Fed continues to reiterate its belief that the labor market represents the key to getting inflation under control as it walks a tight rope by increasing unemployment (to diminish demand with rate hikes) without completely ruining the economy. To learn more about the Fed’s strategy, please review our latest post here.
