FAST-FOOD SALES BUOY STOCKS, BUT THAT MIGHT NOT SATISFY FOR LONG

The situation

From McDonald’s to Wendy’s, America’s biggest restaurant chains are serving up exactly what Wall Street is hungry for this summer: robust sales combined with little or no tariff exposure. But peer deeper, and the outlook isn’t so rosy.

Why it’s happening

That’s because the growth has been rooted in higher prices — not necessarily new customers. Traffic has been flat or falling across the industry as U.S. consumers cut back on eating out in favor of dining on the couch. Unless restaurants can reverse this trend, the recent gains could be fleeting. “Without positive traffic, I don’t think it’s sustainable,” said Peter Saleh, a restaurant analyst for BTIG. The average check has gone up as some of the deep discounting at fastfood chains abates, but that doesn’t mean restaurants are getting more people in the doors.“At this point I don’t think anyone is modeling growth in traffic.”

A delicate balance

Investors have been less skeptical: The Russell 3000 Restaurants Index has risen 12% since May 1 through Wednesday’s close, compared with declines of about 3% for the S&P 500 Index and Dow Jones Industrial Average over the same period. The biggest restaurant players, such as McDonald’s, Taco Bell owner Yum Brands, Starbucks and Chipotle Mexican Grill, have led the way, with the Golden Arches this month touching record highs. Wendy’s, Burger King and McDonald’s are among the companies that have raised prices on parts of the menu while keeping discounts on some areas, Saleh said.

Getting this right is a delicate balance — especially as customer visits are falling and labor costs are rising. Bloomberg Intelligence analyst Michael Halen said higher prices have also contributed to the slower traffic trends.

BLOOMBERG