SBUX - Cracker Barrel Dine Brands dip as Baird warns on casual dining trends

2023-04-17 15:43:54 ET

A number of casual dining stocks slid on Monday as Baird analyst David Tarantino warned that full-service restaurant trends are less than promising.

“With signs that underlying demand trends softened exiting Q1 and entering Q2, we are becoming more convinced that pressures on consumer spending are beginning to mount,” he told clients. “Our proprietary casual dining industry traffic model continues to point to a difficult demand backdrop for the remainder of 2023, and we fear the situation could worsen if tighter monetary policy begins to lead to employment losses.”

While he expects limited service and quick service restaurants to hold up, casual dining and coffee chains could get hit the hardest given the discretionary nature of the purchases. He explained that one-year comps for casual dining participants decelerated 280 basis points in March as compared to the January to February jump.

Tarantino retained Neutral ratings on Chuy’s ( CHUY ) -1.8% , Texas Roadhouse ( TXRH ) -1.2% , BJ’s Restaurants ( BJRI ) -0.2% , and Cheesecake Factory ( CAKE ) +0.2%. While not covered by Tarantino, the cautious commentary on casual dining appeared to drive Dine Brands ( NYSE: DIN ) -2.35% , Cracker Barrel ( NASDAQ: CBRL ) -4.63% , and Red Robin Gourmet Burgers ( RRGB ) -3.63% lower.

Tarantino also maintained a Neutral rating on both Dutch Bros ( BROS ) and Starbucks ( SBUX ) highlighting the “sign that consumers have begun to cut back on discretionary beverage occasions” in channel checks.

“Indications of weakening underlying demand fundamentals in our surveys in March make us somewhat cautious on the setup for BROS,” he explained. “For SBUX, we still see upside to our current U.S. comps estimate for FQ2-23E (have modeled +9% after FQ1's +10%), but highlight potential for the exit rate for the quarter to be much closer to the level embedded in current 2H23 estimates, or possibly slightly below.”

Read more on the latest in the battle between Starbucks management and unions .

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