By Dean Seal


Restaurant chains outperforming their competitors seem to have one thing in common: keeping prices down.

It's a tactic that comes as consumers, fatigued from two years of steep inflation, are limiting discretionary purchases and shifting their food spending to grocery stores instead of restaurants. McDonald's executives said Tuesday consumers are looking for value as economic pressures mount.

The restaurant brands that have taken the most restrained approach to raising prices have widened their lead against their peers over the past three months, Guggenheim analyst Gregory Francfort said in a research note this week.

The analyst is calling Wingstop, Texas Roadhouse, Chipotle Mexican Grill and Domino's Pizza the Mount Rushmore of recent outperformance, each boasting double-digit year-to-date share price gains relative to a 7% jump in the S&P 500.

"We continue to believe that the best moat in the restaurant industry is making more money than peers on >10% lower price points," Francfort said.

The success has been evident in recent results, and could also appear as Texas Roadhouse reports earnings on Thursday.

Wingstop, whose shares are up 44% year-to-date, on Wednesday said revenue jumped by more than a third in the first quarter, clearing analyst projections, while same-store sales climbed more than 21%, almost entirely due to more transactions.

The story has been similar in recent quarters as the chicken-wing chain, with more customers providing a boost to the top line while price increases have been contained to around 1% to 2% annually, Benchmark analyst Todd M. Brooks said in a research note last week.

Wingstop's chief executive, Michael Skipworth, told analysts on Wednesday that the company's disciplined approach to menu pricing is paying dividends. "We believe that indulgent Wingstop occasion delivers upon both quality and value and has us uniquely positioned," he said.

Price increases at Chipotle were limited to about 2.8% during its first quarter of the year, in which it recorded a better-than-expected 7% rise in same-store sales. The company's shares are up 37% year-to-date and reached an all-time high on Monday.

Domino's Pizza, up 26% year-to-date, has been leaning heavily into its value offerings and deals.

The pizza chain is coming off of its best quarter since the pandemic with a 6% jump in revenue. The top-line growth came despite menu prices increasing less than 1% in the first quarter, suggesting that higher customer traffic is driving most of the gains, analysts said.

"We anticipate share gains to sustain as new drivers remain impactful and consumers applaud DPZ's price-value proposition," Oppenheimer analysts Brian Bittner and Michael Tamas said in a research note this week.

Texas Roadhouse is set to release first-quarter earnings after the bell on Thursday. Wedbush analysts Nick Setyan and Michael Symington said last month that the company, whose shares are up 27% year-to-date, is leading other sit-down restaurants in transaction growth primarily because it has repeatedly underpriced inflation.

"TXRH's relative value advantage [is] poised to become even more attractive as 2024 progresses," they said.


Write to Dean Seal at dean.seal@wsj.com


(END) Dow Jones Newswires

05-01-24 1327ET