BofA Securities analyst Sara Senatore provides an analysis for restaurant sector performance in the first quarter.
Restaurant demand showed mixed results due to weather and a calendar shift, said the analyst.
Black Box industry data revealed a deceleration in same-store sales growth (SSSG) across all segments from January to February, but March saw improvement, excluding Fine Dining.
Restaurant spending growth improved in March, with chain spending recovering from -7.5% in February to -3.5%.
Independent restaurants saw a rise in spending, from -2.7% in February to +1.3%. The rebound was attributed to better weather and the impact of the calendar shift in February.
In the first quarter, prices for soybeans, wheat and soybean oil continued to deflate, though at a slower rate than in the fourth quarter of FY24.
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Coffee prices surged, increasing by 96.8% year-over-year, up from 56.8% in the fourth quarter. Beef inflation rose to 5.5%, compared to 1.3% in the previous quarter.
Cheese prices decreased by 1.8%, while dairy inflation slowed to 1.3%. Futures markets predict deflation in several commodities in the second quarter of 2025, but coffee, natural gas and beef are expected to see inflation, noted the analyst.
Restaurants index in the S&P 500 is trading at 1.2x forward EPS, below its 5-year, 10-year and 15-year averages of 1.4x.
Industry data indicates a demand recovery in March after weak months in January and February. While consensus expectations for restaurants remain high, first-quarter results may fall short of estimates.
Investors are focused on April trends and the potential impact of tariffs on consumer sentiment, traffic and COGS inflation.
So, keeping the above points in mind, the analyst has lowered the price targets for Bloomin’ Brands Inc (NASDAQ:BLMN), Dutch Bros Inc (NYSE:BROS), Cheesecake Factory Inc (NASDAQ:CAKE), Cracker Barrel Old Country Store Inc (NASDAQ:CBRL), Chipotle Mexican Grill Inc (NYSE:CMG), Krispy Kreme Inc (NASDAQ:DNUT), Domino’s Pizza Inc (NASDAQ:DPZ), Brinker International Inc (NYSE:EAT), Jack In The Box Inc (NASDAQ:JACK), McDonald’s Corp (NYSE:MCD), Papa John’s International Inc (NASDAQ:PZZA), Restaurant Brands International Inc (NYSE:QSR), Starbucks Corp (NASDAQ:SBUX), Sweetgreen Inc (NYSE:SG), Shake Shack Inc (NYSE:SHAK), Sysco Corp (NYSE:SYY), Texas Roadhouse Inc (NASDAQ:TXRH), Wendy’s Co (NASDAQ:WEN), Wingstop Inc (NASDAQ:WING), and Yum! Brands Inc (NYSE:YUM).
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