The food and beverage industry is tough. Competition is fierce. Consumers are selective. Workers are temporary. And profit margins can be razor-thin. The National Restaurant Association estimates that only 20% of restaurants are successful. Approximately 60% of all restaurants fail in their first year of operation, and 80% fail within their first five years of operation. These are depressing statistics, and they help explain why many restaurant stocks chronically underperform the broader market. The list of restaurant stocks to avoid right now is quite long.
Many restaurant stocks have missed the rally of the past 18 months. While tech stocks are soaring, many restaurant companies are stuck in a quagmire, unable to gain traction or forward momentum. Rising prices due to inflation are forcing many consumers to eat at home, which is having a negative impact on the performance and stock prices of restaurant chains and companies. The situation is further complicated by slowing economic growth in the United States and abroad.
Avoid owning these three restaurant stocks when updating your portfolio to account for current trends.
Darden Restaurant (DRI)
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in stock Darden Restaurants (New York Stock Exchange:DRI) is down nearly 10% year-over-year, as the company continues to report mixed financial results and declining same-store sales. Darden owns franchise restaurants including: olive garden and longhorn steak housethe recently announced earnings per share (EPS) was $2.62, in line with Wall Street expectations. Sales were $2.97 billion, lower than analysts’ expectations of $3.03 billion. The company’s sales increased by 6.8% from the previous year.
Darden executives emphasized that last year’s acquisitions boosted the company’s sales. Ruth’s Chris Steak House, which provided 53 new restaurant locations. However, same-store sales for the quarter overall fell 1%, as nearly all restaurant segments reported declines in same-store sales. A year ago, Darden reported a 12% increase in same-store sales. Management lowered its revenue forecast for this year to $11.4 billion from $11.5 billion.
McDonald’s (MCD)
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Nothing seems to be able to move the stock mcdonalds (New York Stock Exchange:M.C.D.).This is not a new sales plan. Crispy cream (NASDAQ:donut) The plan is to sell donuts in stores nationwide, with growth expected to see Golden Arches open 9,000 new restaurants and add 100 million members to its loyalty rewards program by 2027. It’s not a strategy. Despite all these efforts, MCD’s stock price is down 10% year-on-year. And it’s weakening. Mixed first-quarter results didn’t help the stock price.
McDonald’s warned that consumers were cutting back on discretionary spending and said boycotts continued to hurt sales in the Middle East. EPS was announced at $2.70, compared to analysts’ expectations of $2.72. Revenue for the first quarter of this year was $6.17 billion, compared to Wall Street’s expectations of $6.16 billion. Worldwide same-store sales rose 1.9% in the quarter, below expectations of 2.1%. Management said higher prices had increased spending, but acknowledged that lower-income customers were starting to avoid restaurant chains.
Starbucks (SBUX)
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coffee shop chain Starbucks (NASDAQ:SBUX) stands out as one of the top restaurant stocks to avoid, as its most recent financial results were perhaps the worst of any restaurant company. Starbucks, known for its signature green aprons and lattes, announced disastrous results for the first quarter, and SBUX stock immediately fell 15%. The stock price is now 6% lower than it was five years ago. The situation is so bad that former CEO Howard Schultz came out of retirement to criticize the company on social media.
Same-store sales fell 4% as customer traffic at Starbucks cafes fell 6% in the quarter. Analysts had expected same-store sales to rise 1%. In all regions and markets, Starbucks reported declines in same-store sales and customer traffic. In China, Starbucks’ second largest market, same-store sales decreased by 11% year-on-year (year-on-year). Like McDonald’s, Starbucks blamed its woes on consumers cutting back on discretionary spending and economic slowdowns in countries like China.
Starbucks offered a pessimistic outlook for the future, cutting its forecasts for both earnings and sales in 2024 and saying its stores would likely continue to underperform for several more quarters.
On the date of publication, Joel Baglor did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing Guidelines.
