Motley Fool Money: Why Restaurant Stocks Have Gone Bad

Release Date: August 13, 2025
Host: The Motley Fool
Guests: Lou Whiteman, Rachel Warren, Travis Hoyam

Introduction

In this episode of Motley Fool Money, host Lou Whiteman delves into the recent downturn of restaurant stocks, exploring whether changing consumer tastes or broader macroeconomic factors are to blame. Joined by investment analysts Travis Hoyam and Rachel Warren, the discussion provides a comprehensive analysis of key players like Cava and Chipotle, alongside insights into the overall restaurant industry's performance.

Cava's Sudden Decline

Lou Whiteman opens the conversation by highlighting the significant drop in Cava's stock price, which fell by 23% early trading following a disappointing earnings report. He poses the critical question: "Why have restaurant stocks gone south in 2025?" (00:05).

Travis Hoyam explains that while Cava's headline numbers appeared satisfactory, deeper analysis revealed stagnant traffic and declining margins. He notes, "They lowered their comp sale guidance by 200 basis points to 4% to 6% growth. That's a bad sign." (01:00). Travis attributes part of the woes to a "fluid macro environment" that creates uncertainty for both consumers and investors, leading to diminished confidence in restaurant stocks.

Rachel Warren provides a more nuanced perspective, cautioning against drawing conclusions from a single quarter's performance. She acknowledges Cava's previously strong financials but points out that Q2 saw a significant slowdown in same-store sales growth, down to 2.1% compared to the expected 6%. However, she also highlights positive aspects such as a 20% increase in revenue and restaurant-level profits, suggesting that "it's not all bad news." (02:48).

Lou Whiteman emphasizes Cava's historically impressive same-store sales growth, questioning whether the company's Mediterranean-focused menu can compete with ubiquitous options like pizza and burritos in the American market. He remarks, "I don't know if Kava is going to be able to do the same thing as a burrito place or a pizza place." (03:20).

Travis adds, "There's still a growth story here, but I don't know if the long-term trajectory will match that of other big names." (04:03).

Chipotle's Struggles Amid Leadership Change

Transitioning to Chipotle, Lou notes the stock's significant decline of 38% since its peak in 2024, citing a 4% drop in same-store sales for Q2. The departure of CEO Brian Niccol for Starbucks sparked further concern. Lou questions whether the leadership change is the culprit behind the sales decline, asking, "Is he a reason that same store sales are down?" (06:22).

Travis Hoyam believes the leadership change poses challenges, especially given Brian Niccol's exceptional performance. He states, "If Brian is special, then you do have to ask questions when someone new comes in." (06:55).

Rachel Warren counters by asserting that Chipotle's troubles aren't solely due to the CEO transition. She emphasizes that Scott Boatwright, Niccol's replacement, is a seasoned veteran in the quick-service restaurant industry. Rachel attributes the decline primarily to broader consumer spending issues rather than fundamental business weaknesses. She observes, "Chipotle's recent troubles are more about a consumer spending issue, not a fundamental weakness with the business." (08:04).

Lou further explores whether Chipotle's growth story is over, considering its high valuation and declining same-store sales. Rachel remains optimistic, arguing that Chipotle's long-term advantages and recent positive trends in comps and transactions indicate that the growth narrative is still intact. She points out, "There could be some bumpy quarters ahead, but a solid market and leadership position still give this company a long-term advantage." (09:43).

Macro Trends Affecting the Restaurant Industry

Lou broadens the discussion to the restaurant industry at large, noting a significant pullback in various restaurant stocks, including Sweetgreen, McDonald's, and Starbucks.

Travis Hoyam identifies two macro trends impacting the sector:

1. Slowly Rising Inflation: He describes it as a "boiling frog economy," where gradual inflation affects consumer habits and restaurant operations.

2. Shifts in Consumer Behavior: There appears to be a move towards valuing sit-down dining experiences over quick-service options. Travis observes, "If people are eating out less, they might prefer the atmosphere and are choosing to spend on special occasions rather than everyday meals." (14:05)

Rachel Warren adds that while consumers are shifting their spending, it's not uniformly affecting all discretionary purchases. She notes, "Consumers are becoming increasingly picky about where they want to put their money to work," leading many restaurants to struggle with maintaining traffic and sales. (15:36)

Lou highlights an interesting dynamic where full-service restaurants like Chili's and Olive Garden are seeing growth, while fast casual and fast food establishments are experiencing declines. This contrast suggests a nuanced shift in consumer preferences towards higher-value dining experiences.

Success Story: Toast's Ascendancy

Amidst the challenges faced by traditional restaurant stocks, Toast, a technology company serving the restaurant industry, stands out as a positive performer.

Lou asks, "Toast seems to be benefiting from all trends. Is this something that can continue, Rachel, for the foreseeable future?" (17:23)

Rachel Warren responds affirmatively, detailing Toast's impressive growth trajectory. She points out that in Q2, Toast added a record 8,500 net new locations and expanded its services beyond restaurants to include retail businesses, convenience stores, and grocery stores. Additionally, strategic partnerships with major players like Applebee's and American Express bolster Toast's market position. Rachel concludes, "There's a lot of good going on for Toast right now." (18:15)

Travis Hoyam, however, expresses skepticism about the long-term appeal of Toast. He views it as a commoditized business within the fintech space, lacking the margin opportunities found in other fintech companies. Despite recognizing Toast's current success, Travis remains cautious about its future growth potential, stating, "I fail to see the investor excitement about this. I feel like they're a winner here, but it's a pretty blah business once it levels off from early-stage growth." (19:39)

Investment Recommendations

As the episode wraps up, the hosts discuss potential investment opportunities within the beleaguered restaurant sector.

Rachel Warren voices her bullish stance on Cava, appreciating its discounted stock price and robust business fundamentals despite recent setbacks. She states, "I'm still really bullish on that business. If anything, I'm intrigued by the fact that it's trading at a discount right now." (20:18)

Travis Hoyam remains hesitant to buy Cava immediately but acknowledges its improved valuation compared to Chipotle. He suggests considering established names like Brinker or Darden for investment instead. (20:29)

Lou Whiteman expresses a desire to invest in Toast, especially if its stock continues to decline, highlighting it as a potential buy despite reservations about its long-term prospects. (20:47)

Conclusion

The episode concludes with a cautionary note, reminding listeners not to base their investment decisions solely on podcast discussions. The Motley Fool team emphasizes that personal financial decisions should consider individual circumstances and professional advice.

Travis Hoyam signs off, encouraging listeners to stay informed and engaged with future episodes of Motley Fool Money for ongoing financial insights.

Notable Quotes

• Lou Whiteman (00:05): "Why have restaurant stocks gone south in 2025?"
• Travis Hoyam (01:00): "They lowered their comp sale guidance by 200 basis points to 4% to 6% growth. That's a bad sign."
• Rachel Warren (02:48): "It's not all bad news."
• Lou Whiteman (03:20): "I don't know if Kava is going to be able to do the same thing as a burrito place or a pizza place."
• Travis Hoyam (04:03): "There's still a growth story here."
• Lou Whiteman (06:22): "Is he a reason that same store sales are down?"
• Rachel Warren (08:04): "Chipotle's recent troubles are more about a consumer spending issue, not a fundamental weakness with the business."
• Rachel Warren (09:43): "There could be some bumpy quarters ahead, but a solid market and leadership position still give this company a long-term advantage."
• Travis Hoyam (14:05): "If people are eating out less, they might prefer the atmosphere and are choosing to spend on special occasions rather than everyday meals."
• Rachel Warren (15:36): "Consumers are becoming increasingly picky about where they want to put their money to work."
• Rachel Warren (18:15): "There's a lot of good going on for Toast right now."
• Travis Hoyam (19:39): "I fail to see the investor excitement about this. I feel like they're a winner here, but it's a pretty blah business once it levels off from early-stage growth."
• Rachel Warren (20:18): "I'm still really bullish on that business. If anything, I'm intrigued by the fact that it's trading at a discount right now."

This comprehensive discussion sheds light on the multifaceted challenges facing restaurant stocks in 2025, from macroeconomic pressures and shifting consumer preferences to leadership changes and technological disruptions. Investors are encouraged to consider these factors carefully when evaluating opportunities within the restaurant sector.