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Restaurant & Retail Roundup

Our monthly WTR restaurant and retail report focuses on stock performance, short interest, an outlook for restaurant commodity costs, our casual dining same-store sales (SSS) and traffic survey, and takeaways from the Restaurant Finance & Development Conference (RFDC) that occurred in mid-November. Retailers outperform and restaurants underperform indexes on a MTD basis. For November 2023, the performance reversed, with retailers outperforming the restaurants by a wide margin. On a month-to-date (MTD) basis, our equal-weighted index of restaurant stocks increased 6.2% following a decline of 4.2% in October, but below the S&P 500, which increased 8.6%. Retail names outperformed the S&P 500, increasing 10.5% on a MTD basis, led by the mid-cap retailers. Short interest trends. For the restaurants, the companies with the highest short interest included Red Robin (RRGB: 15.5%), Dutch Bros (BROS: 13.0%), Cheesecake Factory (CAKE: 13.0%), Brinker International (EAT: 11.9%) and Cracker Barrel (CBRL: 11.6%). Short interest for the retailers remains higher than for the restaurants. Retail names with the greatest short interest included Lovesac (LOVE: 26.0%), Kohl’s (KSS: 24.7%), Children’s Place (PLCE: 20.8%), Floor & Décor (FND: 16.7%) and Build-A-Bear Workshop (BBW: 14.8%). Restaurants are seeing a nice tailwind from commodity costs. The commodity index tracked by Datum FS Intelligence continues to fall and is at a ~30-month low. Commodity trends reversed in October and continued to be favorable Y/Y in November as most major commodities dropped M/M, which included beef trim, pork, chicken breast/tenderloins, and cheese. While beef trim prices are trending lower, beef will likely be a headwind for the industry over the intermediate term given the historically small US cattle herd. Casual dining SSS continue to see an uptick through the first half of November driven by traffic. Based on our checks, following a dip in industry traffic in September, we saw a rebound in October and that continued into November. The Y/Y comparisons began to ease in mid-November and that should continue until January, when comparisons become much more difficult again. In terms of recent trends, we estimate October SSS for casual dining was +1.9% with traffic -1.8%. This compares with September, which had SSS of +0.5% with traffic -4.3%. For November so far, trends are similar to October, with low single-digit positive SSS and slightly negative guest traffic. Takeaways from RFDC. While attending the RFDC, we found the tone to be more upbeat than last year given the expectation of better profitability in 2024. Most operators anticipate benign food costs for 2024 except for beef. Restaurant operators anticipate better labor inflation in 2024 versus 2023 but costs remain elevated, especially for those companies with a concentration of locations in California, which is battling the effects of its new AB 1228 legislation. Operators are generally expecting to implement less menu pricing in 2024. Unit growth is expected to slow a bit in 2024 due in part to higher interest rates and inflated construction costs (~30% above pre-COVID levels). Our casual dining SSS data is available weekly on a subscription basis. For more information, please reach out to Tim Regan at .