Restaurant chains predict better results this year. Here’s why investors should think twice to believe in them
It was a difficult start to the year for restaurant chains. People are increasing in spending due to uncertain economic conditions, and restaurants are not able to simply rely on rising prices to raise their top ranks. The last quarter of 2024 has already shown signs of weakness, and things can get worse in the coming months. Ultimately, it may depend on how tariffs affect customers and business entities.
Some large chains of restaurants, including McDonald’s (Nyse: MCD) and Mexican grill from the chip (Nyse: cmg)Expect stronger numbers as the year lasts. But that is by no means a sure thing. Here’s why they might be wrong and why investors may want to be careful when looking at buying Restaurants Reserve now.
For investors, a lot of care when it comes to restaurant stocks is not necessarily sales, but comparable growth of salesWhat tells you how well business grows organic. The comparative figure excludes the effect of openings and closures of new stores, providing more than the apple comparison to apples.
And that’s a problem. For the last three months of 2024, comparable sales of McDonald’s stores increased by only 0.4% globally. In the US, they were down 1.4%. Chipotle, which is smaller in size but known for being the top growth suppliesReport comparable sales growth of 5.4% during the same time frame. It is better than McDonald’s, but a year ago, that growth rate was 8.4%.
Despite the concerned numbers, both McDonald’s and Chipole expect things to improve as the year progresses. Ian Borden, McDonald’s chief financial officer, says the company expects “gradually stabilizing the macroeconomic and consumer environment”. Chipotle also expects things to improve in the second half, when they oppose weaker comparable numbers of the previous year. No company seems to be preparing for a major economic slowdown.
No one wants to predict the worst, but the reality is that trade wars and deteriorating economic conditions could have a disastrous effect on sales and profits for restaurants. Although these chains can offer discounts to lure customers, another alternative may include a simple eating at home.
Wholesale Recently announced its earnings and noticed a change in consumer habits – they spend more on food at home, which may include things like repackaged foods and frozen meals. Management sees that people are simply more careful about what they spend their money.
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