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Restaurant Indicator Signals Happier Days For Retailers

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Restaurant Indicator Signals Happier Days For Retailers


XRT, CBRL, DRI, DPZ, BWLD


A rally in restaurant stocks may be trumpeting happier days ahead for US retailers.


The S&P 500 consumer discretionary stock sector index is up about 3% YTD, with only the S&P energy stock index performing worse.


A ray of light recently is the performance of stocks in restaurants.


The Dow Jones US Restaurants & Bars Index index has risen about 4% since the beginning of September. The S&P 500 consumer discretionary sector stock index is up less than 1% for the frame.


Usually restaurant stocks correlate well with other retailers, but now consumers are showing a preference for dining out over buying clothing.


Shares of Buffalo Wild Wings Inc. ( NASDAQ:BWLD), Domino's Pizza Inc. ( NYSE:DPZ), Darden Restaurants Inc.( NYSE:DRI) and Cracker Barrel Old Country Store Inc. ( NASDAQ:CBRL) have all risen sharply since the beginning of September.


A broadening job recovery and lower gasoline prices are encouraging middle-income consumers to dine out again.


While the better performance at restaurants may have more to do with an increased check size for the average diner, there is a growing belief that consumer discretionary companies will see more spending thanks to lower energy prices.


The average price of a regular gallon of gasoline is $2.914, down from $3.186 a month ago, in the longest sustained decline for prices since Y 2008, according to AAA.


This is likely to boost consumer discretionaries in the next couple of months. Retailers reported strong sales in October in an encouraging sign for the sector, Friday's data showed.


Traders in the options market are not expecting 'fireworks' from the retail sector sstock this holiday season.


The 30-day implied volatility, a gauge of the risk of large moves in a stock, for the SPDR S&P retail fund (NYSEArca:XRT) was at 16% Friday and in the 16th percentile of its 52-wk trading range, data shows.


With overall volatility low, if consumer spending through the holiday season turns out to be better-than-forecast that would be a big win for those making that bet in the option market.


Have a terrific week.


Paul Ebeling


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