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Investors Remain Cautious Amid 'Still-Sluggish' Restaurant Industry Demand, UBS Says

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Investors Remain Cautious Amid 'Still-Sluggish' Restaurant Industry Demand, UBS Says

The US restaurant industry largely continues to face a "still-sluggish" demand, with the macro backdrop posing risks and offering limited visibility into the outlook, UBS Securities said Monday.

Industry growth improved last month sequentially amid stronger fast casual trends, though restaurants' share of wallet and "share of stomach" both dropped "modestly," UBS analysts, including Dennis Geiger, said in a note to clients.

"Our meetings and investor discussions last week continued to highlight more cautious sector sentiment, reflecting broadly still-sluggish industry demand and macro conditions creating risk and limited visibility into outlook," Geiger wrote.

Investor concerns are even greater toward quick-service restaurants, or QSRs, which generate a substantial portion of their revenue from low-income consumers and face more significant macro risks, according to the note.

"While many investors highlighted potential opportunities from valuation pressures across much of the sector and a potentially oversold group, conviction appears limited," Geiger said.

In the QSR segment, sales and traffic improved in April compared to the month prior, UBS said, citing industry data.

"Our latest QSR franchisee discussions continue to highlight performance bifurcation among brands, with gas prices and broader macro challenges negatively impacting visits/spend for many brands," Geiger said. However, certain brands such as Taco Bell of Yum Brands (YUM) and Burger King of Restaurant Brands International (QSR) "appear to maintain significant momentum."

Consumer confidence improved across all income groups this month, UBS said, citing its latest survey. "Encouragingly, consumers reported a greater willingness to spend overall, including on dining out," Geiger said.

"We anticipate underlying restaurant demand and share of wallet trends should be largely consistent through (2026) driven by fiscal stimulus benefits, value efforts, menu innovation, and other initiatives, with potential risks from elevated gas prices and other factors that could pressure consumer sentiment," Geiger said.

Price: $152.22, Change: $+2.25, Percent Change: +1.50%

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