Dashboard: Capital Markets

Oct 4, 2022 | Dashboard, Restaurant Research

Capital Markets Dashboard - Sep 2022

Stock Performance

CONSUMERS DRAGGING DOWN RESTAURANT STOCKS  

The consumer is certainly under pressure, with tepid disposable income growth insufficient to keep-up with inflationary pressures generated by significant increases in product prices, gas prices, rent, interest payments, utilities and forthcoming home heating costs. We can see from the table below that this is translating into a lower savings rate and higher consumer debt levels. In any case, the CEO of Dollar General believes the consumer could weather this economic storm if they remain employed even though it will be difficult for the next quarter or so. Unfortunately, the Fed has made it abundantly clear its intention to increase unemployment levels to fight inflation! 

We see macro-economic prospects weighing-in heavily on restaurant stocks with a -33% median YTD decline for QSR stocks and a -25% median drop for FSR stocks. Simply put, struggling consumers cannot absorb menu price increases sufficient for restaurant operators to pass along their tremendous cost pressures (which are fortunately expected to moderate). This point is well illustrated by Darden’s recent FY1Q23 reporting when management took solace in the fact that the company is sufficiently diversified beyond the struggling lower-income demo. Let’s hope the afflictions of the lower-income demo does not catch-up with the rest of the country!

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