Restaurant Rally Ends as Sales Slump

NEW YORK (TheStreet) -- The hunger pangs are far from over for casual dining and fast-food companies.

While most have, or will, beat profit expectations, this feat apparently no longer holds the same cachet for investors as it did during the first two quarters of the year. Indeed, while stocks in the casual dining sector are up 60% on average, according to Stifel Nicolaus analyst Steve West, the rally shows signs that it will soon be over.

Sales are still slumping across the board. The market appears less likely to reward restaurants for beating expectations through tax breaks and cost cuts. And we have already seen investors pull back after earnings reports this week -- and last -- in a sign that more stock slumps will surely follow.

For example, consider Brinker(EAT Quote). Shares of the company, which owns Chili's Grill & Bar and On the Border chains, plunged more than 12% after the company said it beat expectations, but did so through deep promotions and discounts.

During the quarter, Brinker had earned $15.8 million, or 15 cents a share, down 34% from $23.8 million, or 23 cents in the year-ago period. Excluding one-time items, the chain had actually earned 17 cents a share, surpassing the 15 cents analyst forecast.

Still, revenue sank 21% to $778.1 million from $984.4 million, while same-store sales declined 6%. And traffic tumbled between 5% and 6%, the sixth consecutive year of negative traffic in the first quarter. Hence the punishment from investors.

Likewise, on Wednesday, P.F. Chang's China Bistro(PFCB Quote) missed its profit outlook, sending shares down by 10% to close at $30.28.

While the chain upped its full-year guidance, it still remained below Wall Street's consensus -- and the move was not enough to calm investors shaken by an 8.5% drop in same-store sales at its namesake chain.