Concerns about weight-loss drugs add to weak traffic problems at US restaurants By Reuters

By Débora María Sofía

(Reuters) – Investors will look for signs that U.S. fast-food chains, already struggling with inflation-stricken consumers who prefer to dine at home, will also have to contend with the explosive popularity of weight-loss drugs.

Chipotle Mexican Grill (NYSE:) will kick off earnings season on Thursday, and its comments will be closely scrutinized by investors concerned that appetite-suppressant drugs like Olympic and Wegovy will cause a fundamental shift in food consumption patterns and hurt demand for burgers. and fried chicken. .

“It’s very topical. It’s kind of at the top of the list right now in terms of concerns…investors will probably want to hear more from these companies…about the impact,” said BTIG analyst Peter Saleh.

Companies like McDonald’s (NYSE:) and KFC parent Yum Brands are already grappling with a slowdown in traffic as high inflation undermines consumers’ purchasing power, although Chipotle and Starbucks (NASDAQ:) have some protection from their relatively wealthier customer base.

Additionally, restaurants stopped raising prices and offered additional promotions to attract customers, which could reduce the margin gains that most chains likely saw in the July-September quarter, due to cost easing.

THE CONTEXT

Some companies have already warned of the growing demand for weight loss drugs.

Walmart (NYSE:) said earlier this month that there was a slight decline in food consumption among customers taking those treatments. Conagra Brands (NYSE:) said it may modify portion sizes or ingredients.

Investors’ knee-jerk reaction to those comments sent the under-pressure restaurant index down 1.3% at the time. However, it has since recouped those losses.

In fact, while analysts say these drugs could lead consumers to snack less and order fewer appetizers or desserts, they also say it’s too early to quantify the impact of these drugs on restaurant sales.

What was quantifiable was the progressive worsening of restaurant traffic in fast food chains from July to September.

Overall, traffic went from a 0.8% drop in July to a 4.2% drop in September, according to location analytics firm Placer.ai.

Although footfall at McDonald’s, KFC and Taco Bell remained stable at the beginning of the quarter, they ended the period with drops of 3.7%, 2.1% and 1.2%, respectively.

This was largely because inflation on food at home was much lower (up to 360 basis points, according to Wells Fargo) than on food outside the home, leading more Americans to stretch their budgets by eating more. Homemade meals.

THE BASICS

**On Thursday, Chipotle is expected to report a 4.5% increase in third-quarter same-store sales, according to LSEG data, slower both year-over-year and sequentially. Earnings were probably up around 18%.

** McDonald’s, which will report on Monday, is also likely to post slower same-store sales growth, while profits are expected to rise more than 10%.

** A day later, Yum Brands is likely to post same-store sales growth of 4.7% (up from 5% last year and 9% in the second quarter) and an 11% increase in Profits.

** Starbucks’ fourth-quarter earnings report on Nov. 2 is expected to show a 6.5% increase in same-store sales, down from 10% in the third quarter and 7% last year. Earnings are expected to rise about 26%.

WALL STREET FEELING

** The S&P 500 restaurant subindex is up just 0.4% so far this year, lagging the benchmark S&P 500’s more than 10% jump.

** Shares of the top S&P 500 restaurant stocks have fallen sharply over the past three months: Starbucks down about 8%, Chipotle about 11%, McDonald’s about 12% and Yum Brands nearly 13%.

**However, analysts, on average, still rate the quartet’s stocks as “buys,” LSEG data shows. However, their price targets have been lowered (5% for McDonald’s and 7% for Yum) in the last month.