In this series, we’ll be taking a look at six casual dining restaurants. We’ll cover key fundamental parameters that are critical when analyzing restaurant companies.
Based on the type of service they provide, restaurants are classified into six categories:
- fast food
- casual dining
- fast casual
- family dining
In this series, we’ll focus on casual dining restaurants.
Casual dining restaurants
At casual dining restaurants, the restaurant staff provides full service, and customers are allowed to customize their orders. Compared to fast food and fast casual restaurants, the menu items are more expensive. In this series, we’ll take a look at the following casual dining restaurants:
- Bloomin’ Brands (BLMN): This casual dining restaurant based in Tampa, Florida, operates Bonefish Grill, Carrabba’s Italian Grill, Fleming’s Prime Steakhouse & Wine Bar, and Outback Steakhouse.
- Brinker International (EAT): This casual dining restaurant chain based in Dallas, Texas, operates Chili’s Grill & Bar and Maggiano’s Little Italy.
- The Cheesecake Factory (CAKE): This California-based casual dining restaurant chain operates The Cheesecake Factory, Grand Lux Cafe, and RockSugar Pan Asian Kitchen.
- Darden Restaurants (DRI): This Florida-based multibrand casual dining restaurant operates Olive Garden, LongHorn Steakhouse, The Capital Grille, Eddie V’s, Bahama Breeze, Seasons 52, and Yard House.
- Texas Roadhouse (TXRH): This casual dining restaurant based in Louisville, Kentucky, specializes in steaks.
- Buffalo Wild Wings (BWLD): This casual dining restaurant and sports bar is headquartered in Minneapolis, Minnesota.
For information on fast food, pizza, and fast casual restaurants, you can read the Market Realist series How Did Fast Food and Pizza Companies Fare in 4Q15? and Winners and Losers in the Fast Casual Restaurant Space in 4Q15.
The fourth quarter of 2015 was a tough quarter for casual dining restaurants, as the minimum wage for restaurant workers was raised. With the increase in wages, investors worried about a decrease in margins, since restaurants can’t easily pass off the rise in costs to customers in this highly competitive market.
From the beginning of 4Q15 until March 23, 2016, Texas Roadhouse (TXRH) was the only one of our six casual dining restaurants with a positive return, at 12.5%. TXRH was followed by The Cheesecake Factory (CAKE) and Darden Restaurants (DRI) with -2.2% and -2.7%, respectively.
The companies that took a beating were Buffalo Wild Wings (BWLD), Bloomin’ Brands (BLMN), and Brinker International (EAT), with returns of -25.6%, -11.1%, and -11%, respectively. During the same period, the broader comparative index, the Consumer Discretionary Select Sector SPDR ETF (XLY) rose more than 3.6%.
In the next part of this series, we’ll look at the factors that caused these stocks to underperform in 4Q15 and most of 1Q16.