Restaurant chains’ performance in the first quarter was a mixed bag

Wingstop had the worst two-year same-store sales slowdown in 1Q | Photo: Shutterstock.

A lot of restaurant chains reported some strong results in the first three months of the year, some of which were downright surprising.

Cava reported a 9.7% increase in the first quarter, bucking the nobody-likes-bowls-anymore trend while reestablishing itself as a fast-casual brand on the rise. Noodles & Company maintained its amazing comeback with 9.1% same-store sales. Kura Sushi reported strong results then got an investment from the president himself. 

Further down the list, brands like Red Robin, Chipotle, Starbucks, El Pollo Loco, Burger King and others all reported results strong enough to give executives ammunition to keep doing what they’re doing because it’s working. 

It’s enough to make you think that restaurants’ three-year slump is over. The average publicly traded chain reported a 0.9% increase in same-store sales, a marked improvement from the 0.32% they averaged in the fourth quarter and the best composite result in more than two years. (This is preliminary, as more chains have yet to report.)

But before you get too excited, remember this: Never judge the restaurant industry by its performance in the first quarter.

A deeper look at the results shows the same challenges existed in the first quarter that did last year. And if anything, things are worse. 

To wit: On a two-year stacked basis, same-store sales decelerated. A year ago, restaurants were beset by tariff scares and poor weather and the typical chain declined 0.6%. 

Among chains that have reported thus far, the two-year stack was 0.27% in the first quarter. The two-year figure, in fact, has decelerated each of the past three periods.

Of the 40 chains we analyzed for this exercise, 22 of them reported results that were the same or worse than they were in the fourth quarter, meaning more than half of the chains failed to improve their results. 

Several chains have seen substantial slowdowns in two-year same-store sales. Wingstop’s same-store sales have declined for four straight quarters and its two-year results slowed by 12.5 percentage points.

Sweetgreen in the past two quarters reported its worst and second-worst results in its history and on a two-year basis was down 15.9% in the first quarter. Chains like BJ’s, Popeyes and Maggiano’s all saw substantial slowdowns.

The restaurant industry is getting by on generally weak results overall. Average same-store sales have been below 1% for more than two years now. In a healthy overall environment that number should average 2% to 3%. That environment is not healthy and the average restaurant location is shedding customers.

The first quarter came with plenty of challenges. Weather, at least in some markets, was still weak. But a lot of consumers are hurting financially, pressured by years of inflation that have cut back on their ability to spend. Gas prices started increasing at the end of the quarter, though at least some of that was offset by tax returns. 

The winter quarter is always a tough one for restaurants because weather and consumer belt-tightening is commonplace, which makes it a particularly difficult period on which to judge performance. But it’s not looking quite as good as it might appear.