Fast casual equities
Throughout this series, we’ll take a look at seven fast casual restaurants in order to aid the investment decision-making process. We’ll be covering key fundamental parameters that are critical in analyzing restaurant companies’ performances.
Based on the type of service they provide, restaurants are classified into six categories: fast food, casual dining, fast casual, family dining, pizza, and café restaurants. In this series, we’ll focus on fast casual restaurants.
Fast casual restaurants
Fast casual restaurants are the amalgamation of fast food and casual restaurants. Fast casual restaurants provide limited table service, and their menus are limited and moderately priced.
In this series, we’ll be looking at the 1Q16 performances and key financial indicators of the following restaurants:
Chipotle Mexican Grill (CMG): CMG is a fast casual restaurant chain with headquarters in Denver, Colorado. The company, which specializes in burritos and tacos, went public in January 2006.
Panera Bread (PNRA): PNRA is a chain of fast casual bakery-cafés with headquarters in Sunset Hills, Missouri. The company went public in 1991.
Shake Shack (SHAK): SHAK is a fast casual restaurant chain with headquarters in New York. The company, which specializes in hamburgers, hot dogs, fries, and milkshakes, went public in January 2015.
Habit Grill (HABT): HABT is a fast casual restaurant chain that serves hamburgers, salads, sandwiches, shakes, and french fries. It’s headquartered in Irvine, California. The company went public in November 2014.
Fiesta Restaurant Group (FRGI): FRGI is the parent company of the Pollo Tropical and Taco Cabana restaurant chains. Pollo Tropical specializes in Caribbean cuisine, and Taco Cabana specializes in Mexican cuisine. FRGI went public in May 2012.
Noodles & Company (NDLS): NDLS is a fast casual restaurant chain that specializes in international and American noodle dishes. The company is headquartered in Broomfield, Colorado. It went public in January 2013.
Potbelly (PBPB): The fast casual restaurant chain specializes in submarine sandwiches. The company is based in Chicago, Illinois. It went public in August 2013.
1Q16 was a tough quarter for fast casual restaurants. Out of the seven companies considered, only Panera Bread and Potbelly have yielded positive returns year-to-date. Through 2016, PNRA and PBPB have returned 6.4% and 8.8%, respectively.
The companies that suffered the most were FRGI and HABT. They fell 29% and 24%, respectively. SHAK, CMG, and NDLS fell 12.5%, 6.1%, and 2.4%, respectively. During the same period, the broader comparative index, the Guggenheim S&P 500 Pure Growth ETF (RPG), fell by ~2.5%. RPG has invested 44% of its holdings in travel and restaurant companies.
Next, let’s look at the factors that caused the majority of fast casual restaurant stocks to underperform in 1Q16.