The biggest winners & losers in the restaurant industry right now

Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland discuss what’s behind the slowing foot traffic in restaurants amid the COVID-19 reopening.

Video transcript

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JULIE HYMAN: Well, we've all been talking about it. Things are opening up again, people are getting out again, but where are they going? That is the question that Brian Sozzi is looking at based upon some analysts research about foot traffic to various fast food and other types of chain restaurants. What's going on, Brian?

BRIAN SOZZI: Well, they certainly may not be traveling to every single restaurant that is re-opened right now, guys, and some good data out this morning from Jefferies in partnership with SafeGraph, which tracks restaurant traffic. First up, they're noting in a new note, industry traffic has slowed for three straight months. But it's still growing, but the growth rate is slowing as of the week June 13 compared to the same week in 2019. And that is the correct comparison to be doing given last year was still, the restaurant industry was still seeing significant pressure from the pandemic.

Traffic is also now declining at fast casual, full service, and what they call high flyer restaurants. And for purposes of this report, high flyer restaurants are Domino's Pizza, Papa John's, Chipotle, and a fan favorite of ours here on the show, Wingstop. The biggest winners right now, there are, in fact, winners, are believe it or not, Wendy's and Burger King. Those are seeing improvement in traffic week over week out of the quick service or fast food industry.

And it is interesting to me, because Wendy's has certainly, has gotten pulled into the meme stock trade about a week and a half, for the past week and a half. Interesting to see their traffic to their restaurants going up during their arrival into the meme stock trade, very fascinating. And Burger King is out there promoting a new chicken sandwich. So they might be benefiting from that, maybe at the expense of McDonald's.

And the biggest losers right now appear to be Wingstop and Shake Shack. Wingstop traffic for the week ended June 13 fell 18.9%. And Shake Shack's traffic was down 35.9% for the weekend of June 13 compared to the same week in 2019. What is also interesting, is that these stock prices aren't necessarily tracking what may be happening on the ground, which raises the question, do you need to see a correction in some of these stock prices?

I'm looking at Shake Shack right now on the Yahoo Finance Plus platform. Over the past month, Shake Shack's stock is up about 15%, which is very interesting. Wingstop shares up about 7 and 1/2%. So my take is this, everyone. Let's be real. Any slowdown in eating out is probably temporary. Yes, I think we're all fatigued from some of these fast food plays and eating giant pizzas at home, but we're back out. We're traveling again. It's likely that the summer will be very good to most in the restaurant industry.

Next up, fear the food delivery stocks. You saw Papa John's mentioned there, is seeing its traffic come under pressure a little bit. They're also some of the most highly valued stocks in the fast food space. Papa John's, its stock trades about 42 times forward earnings. Very, very lofty multiple that reflects their very strong past year business. And last but not least, wage inflation isn't necessarily a bad thing for restaurants. And let's go back to Chipotle. They raised wages and even still, they raised wages, they raised menu prices, as we've learned in the past week, but their business by all indications, continues to do pretty well.

JULIE HYMAN: Maybe people are just like buying stuff and going out and picnicking, because it's so beautiful outside here in the Northeast. I don't know. All right, thanks so much, Brian Sozzi.