Morgan Stanley criticizes North American restaurant stocks for facing rising cost pressures

Investing.com – Morgan Stanley’s North America foodservice broad commodities index shows that in March, year over year fell by 5%, but compared with February, costs rose by 780 basis points, mainly driven by egg, chicken, avocado, and coffee prices.

The investment bank noted that pressure on beef prices remained persistent and showed no signs of easing, while freight costs also increased. Strip steak prices accelerated to a 10% year-over-year increase in March, from 5% in February, with a 10% month-over-month gain. Ground beef rose 14% year over year and 3% month over month.

Chicken prices remained in a favorable position, with chicken wings and chicken breasts down 34% and 32% year over year, respectively. Eggs fell 70% year over year in March, but rose 50% month over month. Freight costs accelerated to a 33% year-over-year increase, compared with 18% in February.

Industry same-store sales reached 1.4% in February, improving from January, but remained weak versus the two-year baseline. Off-premise dining led growth, with same-store sales at 2.7%, while quick-service restaurants recorded 1.1%, and fast-casual restaurants were at 0.6%.

Bloomberg Second Measure credit and debit card transaction data shows that restaurant sales fell 3% as of March 15, compared with a 1% decline in February. Since the week ending March 1, the data has continued to decline month over month.

The consumer price index for consumers dining out rose 3.9% year over year in February, down by 10 basis points from January. Inflation in full-service restaurants fell from 4.7% to 4.6%, while quick-service remained unchanged at 3.2%.

Restaurant hourly wage inflation in January edged down year over year to 3.1%, from 3.2% in December. The unemployment rate rose in February from 4.3% in January to 4.4%.

Consumer confidence fell to 55.5 in March, down 2.6% year over year. The personal savings rate accelerated upward by 90 basis points in January, rising from 3.6% in December to 4.5%.

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