Restaurants Show Strong Recovery, But Starbucks and McDonald's Face Challenges
While casual dining chains experience a resurgence, Starbucks and McDonald's still face hurdles in their recovery.
As restaurants begin to rebound, some chains are seeing promising signs of recovery, with revamped menus and marketing strategies sparking renewed consumer interest. However, major players like Starbucks and McDonald’s still face challenges in returning to peak performance.
Starbucks is set to report its quarterly earnings on Tuesday, marking the beginning of several weeks of earnings reports from major restaurant chains. Investors are looking for signs of increased demand as dining out continues to grow in popularity.
Earlier in January, a few restaurant chains like Red Robin and Noodles & Company reported improved sales trends, boosting investor confidence and driving up their stock prices. Red Robin, in particular, expects a 3.4% increase in fourth-quarter comparable restaurant revenue. Meanwhile, Shake Shack saw its stock decline after its disappointing outlook, failing to meet investor expectations.
However, larger chains like Starbucks, Yum Brands, and McDonald’s have yet to reveal their earnings, with McDonald’s scheduled to report on February 10.
Industry data indicates that restaurants generally experienced better results in the fourth quarter of 2024 than in previous months. According to Black Box Intelligence, same-store sales grew in both October and November, though December saw a slight dip due to the late Thanksgiving holiday.
Several casual-dining chains have been in turnaround mode, revamping their offerings and marketing efforts. Chili's, for instance, reported double-digit same-store sales growth for much of 2024. Red Robin has also seen improvements after implementing a broad turnaround strategy, which included adding staff and revamping its menu.
California Pizza Kitchen (CPK) is also reporting strong sales, with momentum continuing into 2025. The chain’s President, Michael Beacham, mentioned that their in-dining numbers were looking strong, signaling that casual dining may continue to recover.
Darden Restaurants, the parent company of Olive Garden and LongHorn Steakhouse, has also seen positive results. Same-store sales for LongHorn Steakhouse and Olive Garden exceeded Wall Street’s expectations, as diners with annual incomes between $50,000 and $100,000 visited more frequently.
Challenges for Starbucks and McDonald's
Despite overall industry optimism, Starbucks and McDonald’s face obstacles in their recovery efforts.
Starbucks, under the leadership of former Chipotle CEO Brian Niccol, is still in the midst of a turnaround. Analysts expect another challenging quarter for the coffee giant, with a projected 5.5% decline in same-store sales. Although the company has implemented changes in its advertising and promotions, more time is needed for broader adjustments, including a potential menu overhaul and improvements in service speed.
McDonald's is also navigating difficulties. The fast-food chain dealt with a foodborne illness crisis in the fourth quarter when an E. coli outbreak was linked to its Quarter Pounder burgers. While consumer traffic initially dropped, analysts expect the company to report a recovery in guest counts by the end of the quarter.
Looking Ahead to 2025
While some chains still face obstacles, there is optimism for the restaurant industry in 2025. Executives from several chains are optimistic, citing improving consumer sentiment and wage growth. Red Robin’s CEO, G.J. Hart, expressed cautious optimism about the year ahead.
Restaurants are also likely to see easier year-over-year comparisons, with sales from 2024’s downturn serving as a more favorable benchmark.
However, the industry is not without its risks. Weather events, such as the recent wildfires in Los Angeles, have displaced customers and temporarily closed some locations. As the year progresses, investors will be paying close attention to how chains handle these challenges and continue to drive consumer demand.
Fogo de Chao’s CEO, Barry McGowan, remains hopeful for a successful year, noting that despite weather disruptions, restaurants not impacted by such events are showing positive growth.