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.
This is not surprising given the concerns about tariffs, but this is still in the early stages. President Donald Trump paused some tariffs by next month, meaning prices could become much higher for restaurants and consumers. At one end of things, costs can rise for restaurant chains, and on the other hand, people may have less discretion.
Given the level of uncertainty about how much tariffs can be established and how long they can last, it could be a risky proposal for investors to believe that macroeconomic conditions will improve later this year. Instead, they could deteriorate.
Top restaurant chains, such as McDonald’s and Chipole, can be good long -term maintenance positions, but it’s important to calm your expectations right now. Things could be challenging for restaurants for the near future, at least until the economic conditions look more favorable. Under those circumstances, you may want to make sure you buy actions with a reduced assessment to compensate for that uncertainty and have a good security margin in case things don’t go as you hope.
However, the safest option at this point may be to take access and see with restaurants during time. There can be plenty of room for them to fall this year, especially if their results do not comply with their optimistic expectations.
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David Jagieski There is no position in any of the aforementioned actions. Motley fool has positions in and recommended Chipotle Mexican Grill and Costco Rudeale. Motley fool recommends the following options: Short March 2025 $ 58 calls on the Chipotle Mexican barbecue. Motley -Budala has Disclosure policy.
Restaurant chains predict better results this year. Here’s why investors should think twice to believe in them was originally published by Motley’s fool
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