The recent improvements in eating out trends do not appear sustainable. I would say the same holds true for year-to-date restaurant stock price performance.
The following two charts, which look at Personal Consumption Expenditure trends and the spread between consumers eating out versus at home, point again to the fact that restaurant stocks have gotten ahead of themselves in 2009. The first chart highlights that, yes, eating out trends took a significant turn for the better in early 2009, but the latest PCE data point shows it may only be a short-term lift as eating at home growth again trumped eating out growth in September.
The second chart shows that although eating out trends did rebound somewhat in 2009, the underlying strength of eating out trends remained strained because on a 2-year average growth basis, meals purchased for off-premise consumption growth continued to outpace eating out growth since October 2007.
These two charts together show that the consumer has not yet recovered and restaurants are not yet out of the woods. Restaurants stocks, on average, however, are up more than 70% year-to-date. I pointed out in late August that many of the industry tailwinds that acted as catalysts for restaurant stock appreciation in late November 2008 would soon become industry headwinds (please refer to my 8/21/2009 post titled “Casual Dining – Now and Then” for more details). Looking back, I was early on this call, but I continue to believe there is more near-term risk than reward for these names as restaurant demand will continue to come under increased pressure until people stop losing their jobs. Margins cannot continue to grow with revenues falling. And, easy comparisons in this environment will prove to be meaningless in 4Q09.