By Evie Liu

Many restaurant stocks are suffering as investors continue to feel uneasy about the U.S. economy and question how much consumers are willing to spend eating out.

Bloomin' Brands, the owner of Outback Steakhouse and Carrabba's Italian Grill, plunged 72% from a year ago, while Dine Brands Global, the operator of Applebee's and IHOP, is down 47%. Both have reached their lowest levels since 2020 during the pandemic.

Fast food, which should benefit as consumers trade down to cheaper options, isn't doing better. Jack in The Box and Denny's shares both tumbled nearly 60% in the past 12 months to the lowest since 2012, pizza chain Papa John's International lost 38%, while burger giant Wendy's is down 21%.

Even the Wall Street darlings have seen some pressure in recent months. Fast-casual chains Chipotle Mexican Grills, Shake Shack, Cava Group, and Sweetgreen stocks gained 34%, 77%, 176%, and 190% in 2024, respectively, as investors chased after their strong same-store sales growth and fast footprint expansion.

In the past three months, Chipotle and Sweetgreen have declined 15%, Cava fell 19%, and Shake Shack tumbled 28%. Another fast-casual chain Wingstop is down 45% in the past six months.

Whether a mature franchise network with thousands of stores or an upstart brand catering to a specific demographic group, these restaurants have the same problem -- they are heavily exposed to the U.S. domestic market.

Persistent inflation, federal layoffs, and the Trump administration's unpredictable policies, especially tariffs, have all soured Americans' outlook for the U.S. economy. Consumer sentiment has dropped for the past three months in a row.

That's starting to impact spending, especially on discretionary items like dining out. In February, sales at restaurants and bars fell 1.5% from a month ago.

Denny's and Jack in The Box, with particular large exposure to California, also feel the impact of a state law last year that increased minimum wage for fast-food workers from $16 to $20 per hour. With menu prices already high and other input costs going up, that has put an extra squeeze on the margins.

In comparison, large fast-food chains with international presence have become a bright spot among restaurant peers. Their diversified income stream from other countries means they can better survive the domestic headwinds.

Shares in Yum! Brands, the owner of Taco Bell, Pizza Hut and KFC, have gained 17% in the past three months, Domino's Pizza increased 12%, while McDonald's and Burger King owner Restaurant Brands International rose 8% and 6%, respectively.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 27, 2025 14:54 ET (18:54 GMT)

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