Consumers Are Spending on Food, Booze, and Travel (Here Are the Investable Winners and One Loser)

As another bustling holiday season comes to an end, we’re analyzing our proprietary data to find out where consumers are spending their time and money to help investors gain an edge.

And by the looks of it, they are having a ball.

Travel, booze, and sit-down restaurants top out LikeFolio’s list of discretionary spending (noting we included some necessary items like grocery and pet supplies just for a frame of reference).

External research by Mastercard Inc. (MA) mirrors LikeFolio’s findings, highlighting a relative weakness in specialty spending on things like jewelry and electronics in favor of entertainment options such as going to eat at a restaurant.

So – who is the cream of the crop this season according to consumers? And which company is missing out on precious dollars?

Here are three names we’re watching…

Darden Restaurants Inc. (DRI): Bullish

Darden is the parent company of a wide array of restaurant options from family favorites like Olive Garden and Cheddar’s to high-end establishments like The Capitol Grille and Eddie V’s Prime Seafood.

The company beat earnings and revenue expectations on its second-quarter report and raised guidance, now estimating $10.3 billion to $10.45 billion for 2023.

LikeFolio data confirms continued outperformance in the restaurant space, with purchase intent (PI) mentions leading its peers.

Perhaps the most positive indicator of future sales is Darden’s rising consumer happiness.

DRI sentiment has improved by five points post-COVID as its top restaurant, Olive Garden, receives a brand reinvention, especially among younger consumers. The Italian classic ranked in the top five of Gen Z’s favorite restaurants in 2022: an impressive feat.

We expect continued outperformance into 2023 to be bullish.

Norwegian Cruise Line Holdings Inc. (NCLH): Bullish

Leading the travel industry into the new year is Norwegian Cruise Line.

Demand for NCLH (known for its laid-back cruising style) continues to grow while shares temper, setting up an increasingly tantalizing divergence opportunity.

NCLH shares sank last week after rival Carnival said it expected to continue losing money into the first fiscal quarter of 2023.

While LikeFolio data can’t speak to near-term drags on expenses, we can offer insight into long-term consumer preferences. A purchase intent comparison shows a significant edge over fellow cruise peers, with NCLH PI up 81% on a 90-day moving average versus Carnival Corp.’s (CCL) 27% and Royal Caribbean’s (RCL) 8%.

We’ll be monitoring NCLH ahead of its next earnings report, which is expected near the end of February. For now, the divergence forming between purchase intent and NCLH shares is increasingly bullish.

Chipotle (CMG): Bearish

While consumers are eating up sit-down restaurant offerings, LikeFolio data shows that Chipotle isn’t feeling the love.

Chipotle demand has slipped by double digits on a quarter-over-quarter (QoQ) and year-over-year (YoY) basis.

The company has employed a price-raising strategy to offset its supply costs, which got it through 2022.

But that strategy may not work forever.

LikeFolio qualitative review suggests the hefty price of a burrito may be weighing on consumers.

LikeFolio long-term and short-term signals have shifted into bearish territory for this fast-casual chain.

We’ll continue to monitor ahead of its next report, but early indications are setting up for disappointment.

Enjoy your weekend,

Andy Swan
Founder, LikeFolio