As Dining Out Becomes a Luxury, How Will Restaurant Chains Fare?
Let's sample the menu of stocks from Darden Restaurants, Bloomin' Brands and Texas Roadhouse to see which make the grade.
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With inflation on everyone’s mind, and with credit-card debt at an all-time high, how are dine-in restaurant chains holding up?
Inflation has proven to be sticky, which has forced the Fed to adjust expectations. According to the CME Fedwatch Tool, the Fed’s first cut is likely to happen in September.
Meanwhile, debt on credit cards continues to skyrocket:
Throw in the effects of GLP-1 weight loss drugs like Ozempic and Wegovy, and it’s enough to give a restaurant shareholders indigestion. Let’s go to the charts to see how the dine-in restaurant industry is holding up.
Darden Restaurants
Perhaps you’ve heard about Red Lobster’s “endless shrimp” debacle. The seafood chain is considering bankruptcy protection after losing money on an “all you can eat” shrimp promotion.
Red Lobster was once owned by Darden Restaurants DRI, which sold the seafood chain for $2.1 billion in 2014. Today, Darden owns Olive Garden, Longhorn Steakhouse, and Capital Grille.
For a larger view click here.
While those brands might whet your appetite, shares of Darden Restaurants are less palatable. Since reporting earnings on March 20, shares of Darden have dropped by about 12%. According to Darden’s chart, that decline is likely to continue.
Darden is trading below its 50-day (blue) and 200-day (red) moving averages, both of which are turning lower. The stock’s decline has occurred on above-average volume (shaded blue), indicating that institutions may be unloading the stock.
Darden recently found support (black dotted line) from an unusual source — the remnants of a cup-and-handle formation from late last year (shaded yellow). However, if DRI drops below that support, located near $150, the shares could fall an additional 10%.
GRADE: C-
Bloomin’ Brands
On the chart of Bloomin’ Brands BLMN, the parent company of Outback Steakhouse, Fleming’s, Carrabbas, and Bonefish Grill, there are both positive and negative signs.
For a larger view click here.
First, the negatives — Bloomin’ Brands has broken its bullish trendline (black dotted line) and fallen below its 50-day moving average (blue). The stock’s bullish trend is broken.
On the bright side, the stock remains above its 200-day moving average (red). This means the stock should find support less than 3% below Monday’s closing price.
GRADE: B
Texas Roadhouse
Did someone say pullback? Despite the recent decline in stocks, Texas Roadhouse TXRH is trading less than 2% below its all-time high. The stock is also trading above its key moving averages.
For a larger view click here.
My only beef with Texas Roadhouse is that the stock has already gained nearly 31% since the start of this year. That’s quite a return for a family restaurant, but traders are hanging on to this name despite the recent bout of market weakness..
GRADE: A
At the time of publication, Ponsi was long TXRH.
