Restaurant stocks rallied in Thursday afternoon trading after McDonald's Corporation ( NYSE: MCD ) led off the earnings season for the sector with a strong earnings report.
Notably, the restaurant giant did not see traffic drop after using pricing to help offset labor and commodity inflation headwinds.
While MCD execs warned during the post-earnings conference call on the impact of inflation and interest rate hikes with consumer spending, the outlook from the team was perhaps less dire than some had feared even with the next several quarters looking challenging.
An interesting dynamic is in play with McDonald's ( MCD ) as it is attracting more higher-income customers, who are noted to trading down to fast food from full-service dining.
The read-through from the MCD earnings report is that some chains have pricing power or appeal as a trade-down option.
Sector gainers on Thursday included BJ's Restaurants ( BJRI ) +6.88% , Shake Shack ( SHAK ) +5.87% , Brinker International ( EAT ) +5.05% , Cheesecake Factory ( CAKE ) +4.61% , Denny's ( DENN ) +3.53% , and Chuy's Holdings ( CHUY ) +3.18%.
McDonald's ( MCD ) fell back from its session, but was still showing a gain of 3.29% at 2:10 p.m.
Dig through McDonald's earnings call transcript.
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Restaurants stocks are rallying because some consumers are trading down from fine dining