Restaurant Pulse Q3 2022: Fast Food Stocks Look Appetizing as Macro Pressure Drives Belt Tightening

Our restaurant coverage has taken a beating over the past two quarters, shedding 8%-10% of its market cap (albeit modestly ahead of a 12%-13% decline in Morningstar's U.S. Large Cap Index) as inflation and a weaker consumer have driven sagging near-term prospects. With wages and food costs each up about 20% since the onset of the COVID-19 pandemic, restauranteurs have been forced to absorb substantial pressure: across our coverage, we've seen a median decline of 630 basis points of restaurant margin over the past 12 months. We don't expect a full margin recovery until fiscal 2024, particularly since consumers naturally shift spending towards the relatively cheaper grocery channel amidst periods of economic pressure, blunting restaurant operators' ability to offset inflation with price increases in the higher cost per meal channel.