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Boring Sit-Down Restaurants Suddenly Look Lively

Tickers in this article: CMG DRI EAT MCD SBUX

NEW YORK (TheStreet) -- Fast casual restaurants Chipotle and Starbucks have been delivering eye-popping sales increases in the United States for the better portion of two years. The losers from the shift in consumer preferences to quicker service restaurants have been the traditional, full-service restaurants like Brinker International and Darden .

However sales data from the second quarter for the publicly traded full-service restaurants suggests they may not be dead after all.

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According to Bloomberg's Knapp-Track, full-service casual dining comparable sales may fall 1.1% in July, which would reverse the prior month's departure from fourth months of sequential improvement. Comparable sales growth is still negative as a result of traffic declines.


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Mirroring this weak fundamental performance, the Bloomberg North American Restaurant Index's total return has amounted to a mere 1% year to date vs. the S&P 500's total return of 5.7%. Per Bloomberg, the index dropped below that of the S&P 500 in April amid worse-than-expected first-quarter financial figures borne from extreme weather conditions.

The attention by the market remains on the full-service restaurant industry's years of market share loss, with little credit being given those companies implementing successful menu price increases, streamlined menus that enhance operating efficiency, low-calorie items that favor the move to healthier lifestyles and remodels that improve guest experience.  Underscoring the market's lack of appetite in the full-service casual dining sector, shares of Darden have shed 13% year to date, while shares of Brinker International have underperformed the S&P 500 with a 0.22% year to date rise.

In its fiscal fourth quarter, Brinker International had gains in same-restaurant sales in all three months of the period at both its Chili's and Maggiano's brands. Citing menu price increases, Chili's and Maggiano's logged same-restaurant gains of 2.5% and 0.9%, respectively, in the quarter, outpacing the comparable sales results supplied by the aforementioned Knapp-Track.

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Dinequity's Applebee's and IHOP concepts had 0.6% and 3.2% respective same-restaurant sales increases in the second quarter, also stronger than Knapp-Track. For their part, Chipotle and Starbucks, the fast casual chains, had robust quarters yet again, posting 17.3% and 6% domestic sales increases.

The losers from the second quarter: quick-service operators McDonald's and Burger King -- their domestic same-restaurant sales fell 1.5% and rose 0.4%, respectively. Each of the quick-service players seem to now fall into a gray area in the restaurant business, lacking the sought after menu items at Chipotle and Starbucks and improved service levels and experiences being found at full-service chains.

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