What happened

Shares of casual dining companies including Bloomin' Brands (NASDAQ:BLMN)Brinker International (NYSE:EAT)Denny's (NASDAQ:DENN), and Ruth's Hospitality Group (NASDAQ:RUTH) were moving higher today alongside much of the market on positive vaccine news.

Consumer discretionary stocks and others that have been hit hard by the pandemic surged after Moderna (NASDAQ:MRNA) reported that neutralizing antibodies were found in all 45 of the phase 1 trial patients who had taken its mRNA-1273 vaccine candidate. The results build on data the company announced in May, and are the latest piece of encouraging news that a coronavirus vaccine will be discovered, possibly sooner than expected. The announcement comes after Pfizer and BioNTech said earlier this week that two of their vaccine candidates were given Fast Track approval by the FDA, and after Gilead said that its remdesivir treatment was shown to lower risk of death from COVID-19 by 62%.

That drumbeat of news has also helped investors overcome fears of economic weakness as coronavirus cases rise and as states like California pull back on their reopenings, closing businesses like bars and indoor dining restaurants once again.

As of 11:36 a.m. EDT, Outback Steakhouse-parent Bloomin' Brands stock was up 10.4%; Brinker, the owner of Chili's, had gained 10%; Denny's had increased 14.7%; and Ruth's Hospitality, owner of the Ruth's Chris steakhouse chain, was 12.6% higher.

The S&P 500 was up just 0.6% at that time after pulling back from an earlier rally, but the small-cap Russell 2000 had gained 3.1%, showing a strong recovery in the stocks that have been most vulnerable to the pandemic.

A group of young people eating pizza around a restaurant table

Image source: Getty Images.

So what

It's clear why restaurant stocks would be gaining on Moderna's progress. The sector has been crushed by the pandemic as chains were forced to close their doors during the initial lockdowns, resorting to takeout and delivery to sustain their business, and the recent spike in infections shows that these businesses are unlikely to return to full health until there's a coronavirus vaccine or some other clear end to the pandemic. The recent closures of indoor dining in a number of states reinforce that message. The recovery in these stocks is fading as cases surge again.

All four of these restaurant chains are poorly positioned to operate without indoor dining. Bloomin' Brands and Brinker tend to run cavernous locations in areas like strip malls, and also rely on alcohol sales to boost revenue. In its most recent update on June 11, Bloomin's results showed that the recovery in its same-store sales seemed to be tailing off with same-store sales declining 28.3% in the week ending June 6, slightly better than the 29.7% decline the week before. Brinker showed a similar trajectory with comps down 25.6% the week ending June 3, better than a 28.3% decline the week before.

Denny's, which operates like a diner, is generally dependent on eat-in breakfast traffic and late-night visits, and said comparable sales fell 40% in the week ended June 10, compared to a 47% decline in the previous week. Denny's also held a secondary stock offering at the end of June to help boost liquidity.

Finally, as a high-end steakhouse, Ruth's Chris has also struggled with restrictions on indoor dining. The company has not updated investors on its second-quarter performance, but said it cut expenses to lower its cash burn rate to between $2 million and $2.4 million per week after reporting a $0.13 per-share loss in the first quarter. It also issued a secondary offering in May.

Now what

With earnings season just kicking off, all four of these stocks are set to report second-quarter earnings over the next few weeks so investors will get more insight into their current performance. Bloomin' Brands will kick off the parade on July 24 with analysts calling for revenue to decline 42% and a per-share loss of $1.15 compared to a profit of $0.36 in the quarter a year ago.

The results will certainly be ugly for all four of these companies, but today's response shows investors are anxious to look past the crisis. Keep an eye on case counts and subsequent vaccine news, as that is likely to guide the recovery in these stocks.