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Diners: Trading Up, Trading Down, or Staying In?

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McDonald's (NYSE: MCD  ) kicked off the week with a solid October same-store sales report, and the results are good news for investors looking for a hedge against a weakening dollar. Later in the week Bob Evans Farms (Nasdaq: BOBE  ) reported a 36.5% jump in quarterly earnings, but decreasing revenue (-2.4%).

The two reports provide a sales snapshot for three different types of restaurants. McDonald's fast food, Bob Evans family dining and Mimi's Cafe casual dining, also run by Bob Evans Farms. Comparing the results should provide some insight into whether consumers are trading down, starting to trade up, or scaling back on dining out.

Restaurant Chain

October Same-Store Sales


-0.1% / 3.3% (U.S. / overall)

Bob Evans Restaurants


Mimi's Cafe


Buffalo Wild Wings (Nasdaq: BWLD  )

0.8% / 1.9% (company-owned / franchised)

Chipotle Mexican Grill (NYSE: CMG  )


Cheesecake Factory


*Results for recently announced third quarter.

Although this is a very limited data set, the results do not show many signs of recovery for the U.S. consumer. If a recovery were underway, same-store sales at Mimi's and Cheesecake Factory should be faring better than more nominally priced fare, as consumers spend more dining out and therefore trade up. Instead, the results tend to show decreases in sales comparisons as you move up the dining cost point, suggesting that consumers are continuing to cut back. Bob Evans Farms did report an increase in food product segment sales, which could indicate more consumers eating at home rather than dining out.

More fashionable but still reasonably priced chains such as Chipotle notched nice gains, and even Buffalo Wild Wings put in a respectable gain, but those were hardly the heady increases that those companies had posted recently. As the poster boy for cheap fast food, McDonald's has shown that even it is not recession-proof.

In McDonald's case, global sales increased due to strong performances from non-U.S. markets. Currency exchange had been a drag on sales over the past several months, but that trend reversed and added to McDonald's system-wide sales for October.

If a weaker dollar is a continuing trend, currency exchange becomes a tailwind for companies with diverse international exposure such as McDonald's, boosting revenues and earnings going forward. 

A weaker dollar also benefits other companies with significant sales outside the U.S. like McDonald’s competitor Yum! Brands (NYSE: YUM  ) or firms that have been facing similar currency exchange headwinds like Proctor & Gamble (NYSE: PG  ) and H.J. Heinz (NYSE: HNZ  ) . 

Signs of economic recovery in the U.S. are still sparse. Investors can find some protection against a weak American economy and declining dollar in stable companies with significant revenue from outside the country. The latest McDonald's monthly sales report shows it continues to be a good candidate to provide that protection. 

More on McDonald's:

Chipotle is a Motley Fool Rule Breakers recommendation. H.J. Heinz and Procter & Gamble are Income Investor recommendations. Buffalo Wild Wings and Chipotle are Motley Fool Hidden Gems selections. The Fool owns shares of Chipotle and Buffalo Wild Wings. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Russ Krull enjoys mushroom and swiss Angus burgers. He owns shares of McDonald's and Bob Evans Farms, but has no position in any other stock mentioned. The Fool has a disclosure policy.

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10/25/2016 4:00 PM
MCD $112.72 Down -0.85 -0.75%
McDonald's CAPS Rating: ***
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BWLD $136.30 Down -4.90 -3.47%
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PG $86.97 Up +2.87 +3.41%
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