Restaurant Stocks Roaring Back
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The restaurant sector is breaking out. BLMN reported earnings today and our trade is up nearly +40% in just a few weeks. TOST was also up +19% from our buy price.
Below is re-print of our thesis on BLMN and TOST from our July 12th Substack post...
Restaurant Sector Turnaround
For the past few years, the sector battled historic food inflation, skyrocketing labor costs, and a pinched consumer. That’s all stabilizing now and the stocks are rebounding from oversold levels.
Proprietary surveys are showing a rebound in consumer sentiment. They are eating out more, but they want food with “good value”.
Bloomin’ Brands (BLMN) is part of the restaurant and consumer spending theme. BLMN owns a chain of casual dining restaurants including Outback Steakhouse. This is a smaller ($700M market cap) and therefore riskier stock so caution is warranted.
Through 2024 and 2025, the stock fell -80% from its highs. The restaurant story is a familiar one: Profit margins were pressured due to rising labor costs and food inflation, while consumers balked at rising menu prices. Guests traded down to cheaper restaurants or pulled back on sit-down dining altogether.
Since then, the company launched a major facelift to the Outback brand. Better food, better experiences, better marketing. Q1 earnings released in May was a huge surprise, proving out the turnaround strategy.
On the daily chart you can see the earnings gap, a reclaim of the 200-day moving average, and the downtrend being broken. It held the earnings gap (meaning it did not revisit the pre-earnings price level) and is now forming a small consolidation above the 200-day moving average. A break out of this consolidation is worth a small trade for good upside.
Second Pick: TOST
Toast (TOST) is another way to bet on the restaurant theme. They make the point-of-sale machines that restaurants use for ordering and checkout, as well as restaurant management software (menu management, team scheduling, inventory control, loyalty programs, etc.)
Restaurants pay TOST a percentage of the check, so it’s no wonder this stock is down with the broader industry. It’s also been dragged down by investor concerns about SaaS software, but restaurants operate in the physical world — restauranteurs don’t have the wherewithal to replace this software.
After a lengthy selloff, the stock is consolidating at the bottom and threatening to break out of the $30 level. The company had an atrocious Q1 earnings report in May (weak earnings and forward guidance) but the stock was bought back up shortly after. When a stock goes up on bad news, that’s a sign of oversold conditions.
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