Restaurants struggle as consumers eat at home
— -- Cash-strapped consumers are getting reacquainted with cooking at home, and that's been bad news for restaurants and their stocks.
The dining-out industry is suffering through a major fire in the kitchen. Slowing business is forcing chains to shutter locations. Restaurants that remain open are seeing a drop-off in sales.
Shares of the top 26 restaurant companies have seen their stocks lose an average 49.3% of their value from their highest points over the past 52 weeks. That's been an even harsher pullback than the 46.5% decline of the Standard & Poor's 500 from its 52-week high.
Meanwhile, 20 members of the retail and restaurants industry classification are dangerously close to having trouble keeping up with the interest payments on their corporate debt, S&P says. That makes it the third-most-pressured industry group among the 21 that S&P considers the weakest. Meanwhile, nine of the top 26 publicly traded companies have posted losses in their most recent quarters.
"Everyone is pulling back," says Lynne Collier, restaurant analyst at KeyBanc. "The economy is playing into it."
While the economy is prompting some families to closely review their budgets, taking a hard look at their dining-out costs, the stock market is especially punishing restaurants that:
•Cater to the high-end diner. As consumers look to cut back expenses, restaurants with the highest tabs are the first to see business slide, says Jeff Farmer, analyst at Jefferies. Consumers might forgo brunches at Cheesecake Factory if they're worried about their jobs, he says.
