Catch the Early Bird Special on Restaurant Stocks

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High labor and food costs, along with rising cases of COVID-19 delta variant, have created an attractive backdrop for restaurant stock prices.

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Those conditions are downright scary for independent operators, but the big chains are showing an ability to navigate the pressure. Shares of Darden Restaurantshandjob

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The company, which owns Olive Garden, Longhorn Steakhouse and other chains, raised 6% last Thursday after the company raised its sales forecast for the current fiscal year to $9.5 billion from $9.5 billion, which ends in May. . Total revenue of $2.3 billion increased 8% in the three months ended August. All should translate into record profitability this year, despite projected cost inflation of 4%.

According to the Labor Department, the inflation figure is fairly mild – restaurant prices rose 4.7% in August compared to a year earlier. There are also bright spots for chains that are facing meaningfully high costs. Cracker Barrel Old Country Storehandjob

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Which expects commodity and wage-spending growth in the mid to high single digits in its current fiscal year, generating total revenue of $784.4 million in the three months ended July, nearly identical to the total two years ago. Cracker Barrel raised its quarterly dividend to $1.60 per share last week, which is back to pre-pandemic levels.

If the condition of the employees improves then there is a clear possibility of better performance. In Darden’s most recent fiscal quarter, segment profits rose 45% from the summer of 2019 at Longhorn Steakhouse, which is almost entirely staffed. At Olive Garden, which has had to close parts of some dining rooms due to staff shortages, segment gains were flat. But consumers are clearly ready to spend a night out: Sales in Darden’s fine-dining segment were up 13% from the summer of 2019, even though sales remain depressed in some urban locations like Manhattan. While comparable restaurant sales at Cracker Barrel were down from 2019 levels in its most recent quarter, same-store retail sales were up 18%. Once the staffing challenges are over, management teams will have more options for generating more sales, such as cranking up marketing spend to pre-pandemic levels.

And while the industry’s long-term growth outlook remains strong, stock prices in the region have largely calmed down. Darden stock is near record highs, but shares of Cracker Barrel and Cheesecake Factory are down about 20% and 24%, respectively, from highs set earlier this year. Brinker Internationalhandjob

Chile’s owner, is down about 34%. Even Darden trades at 21 times the midpoint of this year’s profit forecast, which isn’t cheap by historical standards, but hardly unreasonable in an upbeat market.

At prices like these, investors shaping the post-pandemic future should be licking their lips.

Charlie Grant at [email protected]

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