Please ensure Javascript is enabled for purposes of website accessibility

Why These Restaurant Stocks Jumped on Wednesday

By Daniel Miller – Updated Jun 3, 2020 at 5:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Positive sales data from two restaurant chains drove the sector higher Wednesday.

What happened

Shares of Denny's (DENN -0.84%), Ruth's Hospitality Group (RUTH -1.75%), and Dine Brands Global (DIN -1.27%), various restaurant chains, all jumped today after positive sales data and trends from Cheesecake Factory and Red Robin Gourmet Burgers pushed the sector higher. At the close on Wednesday, Denny's was up 11.9%, Ruth's was up 8.8%, and Dine Brands was up 9.5%.

So what

The broader restaurant industry was feeling some relief Wednesday after Cheesecake Factory and Red Robin released business updates that emphasized dine-in crowds were rebounding. Management announced that Cheesecake Factory restaurants have generated roughly 75% of prior-year sales levels, driven by an increase in off-premise sales and its rebounding dine-in business that is operating under local capacity restrictions. Roughly 25% of Cheesecake Factory restaurants have reopened dining rooms with limited capacity, and management hopes that roughly 65% of dining rooms will be reopened by mid-June.

Red Robin is a step ahead in terms of reopening its stores. Management expects to have 270 dining rooms operating with limited capacity by June 7, which is roughly 65% of the company's restaurants. One encouraging takeaway from Red Robin's data was that it recorded five sequential weeks of sales improvement through May 24. A great sign for investors is that management noticed restaurants that opened up dining with limited capacity are still generating meaningful off-premise sales. That suggests that as restaurants fully rebound, chains that developed strong off-premise deals could take market share and incremental sales from restaurants that didn't (or couldn't) develop off-premise sales.

Ruth's Hospitality Group, which has over 100 steakhouses; Dine Brands, known for its Applebee's and IHOP brands; and Denny's, a staple breakfast chain, all stand to benefit if they see trends similar to Cheesecake Factory and Red Robin. The sales data and trends from the previously mentioned restaurants emphasize that some restaurants could be stronger post-crisis thanks to newly developed off-premise strategies. The data also showed that consumer spending could rebound more quickly than anticipated, and that restaurants could operate at limited capacity without being crippled. All are positive factors and likely driving forces behind much of the restaurant sector gains on Wednesday.

A plate full of pancakes

Image source: Getty Images.

Now what

Although the sales data and trends previously mentioned were positive, investors also have to remember that many restaurants will still be announcing serious financial pain during the second quarter. Cheesecake Factory, for instance, still recorded a 63% decline in same-store sales during the second quarter through May 31. Ultimately, restaurant stocks have been hammered, and now that data is emphasizing the worst could be over, it's no surprise to see so many stocks rising Wednesday.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Denny's Corporation Stock Quote
Denny's Corporation
$9.41 (-0.84%) $0.08
DineEquity, Inc. Stock Quote
DineEquity, Inc.
$63.56 (-1.27%) $0.82
Ruth's Hospitality Group, Inc. Stock Quote
Ruth's Hospitality Group, Inc.
$16.86 (-1.75%) $0.30
Red Robin Gourmet Burgers, Inc. Stock Quote
Red Robin Gourmet Burgers, Inc.
$6.73 (0.15%) $0.01
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
$29.28 (-2.33%) $0.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.