What Happened?
A number of stocks jumped in the morning session after investors cheered a government report showing that inflation remained steady in July.
The steady inflation figures have fueled expectations that the Federal Reserve may soon consider an interest rate cut to stimulate the economy, a move that would likely benefit consumer discretionary spending, including dining out. The July Consumer Price Index (CPI) rose 2.7% from a year earlier, meeting the previous month's pace and coming in slightly below economists' expectations of a 2.8% increase. On a monthly basis, the CPI rose 0.2%, a slowdown from the 0.3% increase seen in June. While the cost of dining out continued to climb, rising 0.3% in July, this was offset by a 0.1% dip in grocery prices, contributing to the overall stable inflation picture. The market's positive reaction sent major stock indexes, including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, soaring. This optimism spilled over into the restaurant sector, which has been grappling with a challenging macroeconomic environment marked by high costs and concerns over consumer traffic.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Sit-Down Dining company Cracker Barrel (NASDAQ: CBRL) jumped 3.4%. Is now the time to buy Cracker Barrel? Access our full analysis report here, it’s free.
- Traditional Fast Food company Arcos Dorados (NYSE: ARCO) jumped 4.2%. Is now the time to buy Arcos Dorados? Access our full analysis report here, it’s free.
- Sit-Down Dining company BJ's (NASDAQ: BJRI) jumped 3.1%. Is now the time to buy BJ's? Access our full analysis report here, it’s free.
- Sit-Down Dining company Denny's (NASDAQ: DENN) jumped 4.2%. Is now the time to buy Denny's? Access our full analysis report here, it’s free.
- Sit-Down Dining company The ONE Group (NASDAQ: STKS) jumped 3.6%. Is now the time to buy The ONE Group? Access our full analysis report here, it’s free.
Zooming In On Arcos Dorados (ARCO)
Arcos Dorados’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 6.1% on the news that the company reported weak first quarter 2025 results: Its same-store sales missed and its revenue fell short of Wall Street's estimates. Same-store sales only kept pace with inflation, as revenue dipped slightly, hurt by softer demand in Brazil and North Latin America. Margins took a hit, too, as costs for food and rent crept higher while growth in spending didn't keep up, which pulled down profits. As a result, earnings fell relative to the previous year, and came in below consensus estimates. The company stayed upbeat in its commentary as it observed some uptick in demand in March. With currency headwinds and tighter wallets across its key markets, it'll have to work harder to win back momentum.
Arcos Dorados is down 6.7% since the beginning of the year, and at $7 per share, it is trading 30.7% below its 52-week high of $10.10 from August 2024. Investors who bought $1,000 worth of Arcos Dorados’s shares 5 years ago would now be looking at an investment worth $1,488.
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