Chipotle, Shake Shack and Names to Avoid as Restaurants Hit By Inflation Surprise

Have you noticed recently that it’s a little bit easier to get a table at your favorite restaurant? If so, you’re not alone.

According to a March article from OpsAnalitica, full-service restaurants have been the hardest hit in a general traffic decline, with a drop in foot traffic of 20%. Fast-casual dining saw a 12% decrease in traffic, while quick service restaurants saw 8% fewer customers.

Inflation Is the Culprit

Inflation reared its ugly head again on Thursday, when the July producer price index was released. Prices at the producer level leapt higher by 0.9% in July, while economists were expecting just 0.2%.

The report seemingly ended any discussion of a 50 basis point rate cut at the Fed’s September meeting. Still, the likelihood a 25 basis point cut remains high at 92.8%:

The report could be an outlier, but in theory, producer prices lead consumer prices. Everyone will be watching the next CPI report, which is due on September 10 — one week ahead of the next Fed meeting.

Consumers Face Tough Choices

Inflation forces consumers to make tough choices, including whether or not to dine out. Looking at some of the charts of these dining establishments, it appears that further declines could be on the table.

There are numerous weak charts within the group. These are all weekly charts, an indication of the size — and the significance — of the following bearish patterns.

1. Chipotle Mexican Grill (CMG)

This one-time darling of the fast casual dining industry, CMG has fallen by 38% since reaching an all-time high last in June of 2024. Over the past 18 months, Chipotle has formed a bearish triple top (shaded yellow), and has fallen below its 200-week moving average (red).

When Chipotle reported in July, earnings were in line with expectations, while revenues fell short by about 1%. The stock recently touched a 52-week low, and has fallen 28% year to date.                                                                                   

GRADE: C-

2. Shake Shack (SHAK)

On the weekly chart, Shake Shack SHAK has formed a bearish double top pattern (shaded yellow). This ominous formation suggests that shares of the New York-based burger and shake chain could fall to $90.

GRADE: C-

3. Bloomin' Brands (BLMN)

Crikey! Shares of the parent company of Outback Steakhouse, Carrabba’s Italian Grill, and Bonefish Grill BLMN have lost about 75% of their value since March 2024. Bloomin’ Brands closed 41 underperforming locations last year.

The good news is that Bloomin’ Brands has fallen into an area of support (green shaded area), left over from the early days of the pandemic. The bad news is, shareholders who have held the stock for the past five years have lost 44% of their investment.

GRADE: D

The worst part is, there’s no visible catalyst on the horizon to turn these stocks around. Either consumers must earn more, or prices must fall, before affordability can return. Barring any unforeseen circumstances, I don’t see a turnaround for this sector in the near future. 

At the time of publication, Ponsi had no positions in any securities mentioned.