Why These Beaten Restaurant Stocks Are Rising
Shares of At Dave and Buster’s ( PLAYER -1.05% ), Ruth’s Home Group (RUTH -0.58% )and Dard Restaurants ( DRI -0.24% )various restaurant chains jumped on Friday – Dave & Buster’s and Ruth’s jumped more than 17% at one point – after a positive jobs report instilled optimism in the markets.
Friday brought surprising but incredibly welcome news when the Department of Labor jobs report showed the economy added 2.5 million non-farm payrolls in May. Not only was May’s result a high number, but it was shocking given that the consensus forecast called for a loss of 7.5 million in nonfarm payrolls. While unemployment is still at a staggering 13.3%, that’s broadly supportive of the expected 19% and better than the 14.7% level in April.
In addition to the phenomenal jobs report on Friday, consider that American Airlines Group announced plans to increase flights by 74% next month, suggesting there is hope for a rapid rebound even for the most battered industries.
The May jobs report and an expected increase in theft are encouraging for beaten sectors including cateringwhich would benefit hugely from a V-shaped economic recovery that was considered unlikely until Friday’s spark of optimism.
More good news for restaurant stocks came earlier this week from cheesecake factory ( CAKE 0.47% )who said on average its reopened stores were operating at limited capacity recovered about 75% of previous year’s sales. That’s encouraging for restaurant investors who didn’t know how quickly the American consumer would exit to spend in restaurants.
Currently, Cheesecake Factory has about 25% of its restaurants open in limited capacity, and it aims to have 65% open by mid-June, offering investors hope that the reopening can happen quickly and at least allow businesses to operate at near normal levels.
There are a few things to consider, good and bad. First, investors should consider that even with this week’s rally in restoration stocks, they are still significantly behind the rally in the S&P 500.
Second, some restaurants need a return to normal more than others. Dave & Buster’s, for example, has been less able to recover from its business losses as much comes from its gaming segment. On the other hand, restaurants such as Cheesecake Factory have been able to innovate and focus on off-site retail offerings. , which remained strong even with a return of restaurant traffic.
Third, while it looks like consumers are ready to go out and eat in restaurants, there is still uncertainty about whether or not we will see a resurgence in COVID-19 cases and, as a result, consumers will return to a more reluctant and cautious state. expenses.
Only time will tell how this recovery unfolds, but one thing is certain: May’s jobs report was a welcome surprise, and even battered sectors may see light at the end of the tunnel.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.