Restaurant check: McDonald's faces European risk, big gains for Arcos Dorados, Ruth's Hospitality, Potbelly
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Bank of America sized up the impact of the attack on Ukraine by Russia on the restaurant sector. Global restaurant operators were noted to face limited exposure to Ukraine and Russia, but a spillover effect to European traffic is considered a bigger risk to the sector.
Analyst Sara Senatore observed that due to Russiaâs declining economic fortunes over the years, the market represents a very small share of most companiesâ total systems that operate there, ranging from 2% of systemwide sales for McDonald's (NYSE:MCD) to 0.2% for Starbucks (NASDAQ:SBUX). Licensing also further mitigates the exposure to the region for most of the chains.
However, Senatore and team warn that the conflict in Ukraine could threaten to dampen broader European market.
"As a share of systemwide sales, Europe accounts for a reported 24% of McDonaldâs total, while we believe the region may generate as ~34% of operating profit. At the other end of the spectrum is Starbucks, where Europe accounts for just 5% of systemwide sales according to industry estimates."
Yum Brands (NYSE:YUM), Restaurant Brands International (NYSE:QSR) and Domino's Pizza (NYSE:DPZ) all have more than 2K units in Europe.
The restaurant stocks with the highest YTD returns this year amid the labor and inflation headwinds are mainly focused on the U.S. - including Arcos Dorados (NYSE:ARCO) +28%, Ruth's Hospitality Group (NASDAQ:RUTH) +18%, Biglari Holdings (NYSE:BH) +13%, Ark Restaurants Corp. (NASDAQ:ARKR) +8%, Potbelly (NASDAQ:PBPB) +7%, Bloomin' Brands (NASDAQ:BLMN) +7% and Dave & Buster's Entertainment (NASDAQ:PLAY) +6%. Many of these names are benefiting from Omicron anxiety evaporating.
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