3 trends are dividing restaurant companies into winners and losers

Restaurant companies navigating immoderate of the aforesaid challenges successful the 2nd quarter fell into 2 categories: winners and losers.

Some chains said their higher paper prices alienated diners, portion others said user behaviour hasn't changed adjacent arsenic their nutrient and drinks turn much expensive. Promotions drove customers to definite restaurants — oregon fell level arsenic diners focused connected value. And low-income customers visited immoderate restaurants much frequently, but skipped visits astatine different eateries.

Broadly, ft postulation to restaurants has fallen. Sales maturation has slowed arsenic galore eateries clasp disconnected connected different circular of the terms hikes that drove beardown gross a twelvemonth ago. Customers person go much selective astir however they walk their money, including wherever they eat, starring to a sharpening disagreement successful chains' performance.

While astir edifice companies crushed net expectations, a fig of them fell abbreviated of Wall Street's estimates for their quarterly revenue. McDonald's and Wingstop some reported second-quarter earnings, gross and same-store income maturation that topped analysts' expectations, a rarity this 4th for edifice companies.

On the different end, Papa John's, Wendy's, and Chipotle Mexican Grill were among the flock of companies that disappointed investors with weaker-than-expected sales. All 3 companies' stocks haven't recovered yet.

Here are 3 trends that defined the 4th and determined its winners and losers:

Two metrics signifier a company's same-store income growth: however overmuch customers walk connected each order, and however often they sojourn the edifice chain.

As eateries hold much terms hikes and customers ticker their wallets, restaurants person to trust connected the 2nd benchmark — postulation — to bolster their same-store sales. And Wall Street is watching closely.

"Investors surely privation tons of postulation arsenic a motion of wellness for the concepts," TD Cowen expert Andrew Charles told CNBC.

McDonald's, Chipotle, Texas Roadhouse and Wingstop were among the fewer chains that reported U.S. postulation maturation successful the latest quarter.

On the different end, Restaurant Brands International said U.S. postulation slipped for 3 of its chains: Popeyes, Burger King and Firehouse Subs. Rival Wendy's reported its home transactions fell 1% successful the 2nd quarter.

Looking ahead, postulation could autumn adjacent much successful the 2nd fractional of the year.

"And arsenic we determination done 2H23, paper pricing volition apt autumn accelerated arsenic ostentation nary longer justifies the prices, and barring a accelerated postulation reversal, the comps should optically autumn conscionable arsenic fast," Barclays expert Jeffrey Bernstein wrote successful a enactment to clients Aug. 11. "This does not bode good for edifice banal show successful coming months, successful our view."

Inflation is cooling, and much economists are predicting a "soft landing" alternatively than a recession. But consumers are inactive looking for value.

Broadly, the fast-food assemblage has benefitted from consumers trading down from fast-casual restaurants into their cheaper burgers and tacos. But user cognition of worth differs crossed chains.

For example, McDonald's CEO Chris Kempczinski said the concatenation is performing good with consumers who marque little than $100,000, and with those who marque nether $45,000. On the different hand, Wendy's CEO Todd Penegor said the burger concatenation saw diners who marque little than $75,000 propulsion backmost connected their purchases.

Likewise, Wingstop said its customers' cognition of its worth is improving, coinciding with falling chickenhearted helping prices.

"We are seeing affirmative trends successful worth scores with guests, successful an situation wherever galore brands are measuring decline," Wingstop CEO Michael Skipworth told analysts.

Fast-casual rival Chipotle has besides benefited from diners' cognition of its burrito bowls' value. Chipotle has seen low-income consumers instrumentality to its restaurants much than they were a twelvemonth ago, CFO Jack Hartung told analysts.

Still, Chipotle's low-income customers aren't visiting arsenic often arsenic they were earlier ostentation began accelerating. The concatenation has paused terms hikes for now, but volition determine person to the 4th fourth if it volition rise them again.

One fast-casual concatenation has struggled with consumers' worth perception. Noodles & Company said its postulation cratered by treble digits successful the archetypal portion of the 4th arsenic customers pushed backmost against its higher prices, which roseate 13% from the year-ago period. In response, Noodles dropped its prices by 3% and pivoted its selling to absorption connected value.

As restaurants and customers absorption connected value, discounts and combo meals person stolen astir of the selling thunder. Limited-time paper items besides helped immoderate restaurants' income — but weren't capable to offset weakness for others.

On 1 extremity of the spectrum was McDonald's. The burger chain's Grimace Birthday Meal fueled buzz connected societal media and postulation to its restaurants.

"This quarter, the taxable was, if I'm being honest, Grimace," CEO Kempczinski said connected the company's league call.

The promotion featured the limited-time purple Grimace milkshake and halfway paper items, similar the prime of a 10-piece McNugget oregon a Big Mac. It leaned connected nostalgia for the mascot.

But not each promotions helped restaurants' apical line.

For example, Papa John's released Doritos Cool Ranch-flavored Papadias for $7.99 successful May. The limited-time paper point besides drove societal media buzz and postulation to restaurants, according to executives. However, the caller Papadias couldn't vie with the chain's pepperoni-stuffed crust pizza it released a twelvemonth earlier for $13.99.

"That postulation summation wasn't capable to offset cheque decline, and truthful you had weaker same-store sales," BTIG expert Peter Saleh said.