Last week’s combo of Thanksgiving and Black Friday saw restaurants posting better than expected sales. According to First Data, the restaurant and establishment sales for Nov 24-25 paid for by credit or debit card increased by an impressive 11.7% from a year earlier.  This week saw some of restaurant stocks posting healthy gains. Chipotle (NYSE:CMG), which closed at $301 last Friday, gained almost 10% through Thursday close.
Starbucks (NASDAQ:SBUX) also found support this week. We believe that Starbucks will have a hard time expanding internationally in countries like China and Vietnam due to its higher pricing. It will either have to expand at a very slow rate or reduce the prices. Reducing prices could have an adverse effect on its EBITDA margins, especially due to high costs of commodities.
You can read more on it in our earlier article, Starbucks Could be Too Expensive for Chinese Tastes.
McDonald’s (NYSE:MCD) had a mixed week. Although it rose some through Thursday, it under-performed the markets. However, we believe that the current market price is in line with the long term intrinsic value of the company.
The restaurant industry is expected to perform well in the year ahead. The Restaurant Performance Index, which measures the overall health and outlook of the U.S. restaurant industry, was 100.1 in the month of September, up 0.7% from August.  Restaurants have also been successfully been able to pass on higher commodity costs to consumers and enjoyed higher same-store sales this year. The trend is likely to continue next year as well. Moreover, the Consumer Confidence Index(CCI), released this week, was at its highest level since April 2003. So, we can expect a good year ahead for the restaurant industry.Notes: