Restaurant shares, particularly those that haven't rallied much so far this year, gained Tuesday on strong same-store sales from some chains and economic optimism.

Sentiment in the sector was negative in the last month, given inconsistency in macroeconomic data, Oppenheimer & Co. analyst Matthew DiFrisco said. Last week ended on a positive note with data showing the U.S. economy shed fewer jobs than expected, he said, and consumers in general got a lift from retail-sales data. Retailers reported same-store sales above analysts' estimates Thursday, as terrible weather in February failed to keep shoppers from stores.

There's increased conviction that the restaurant sector has seen a bottom, DiFrisco said, which has shorts covering and investors anticipating improvement in top-line trends.

McDonald's Corp. (MCD) reported Monday that global same-store sales rose 4.8% in February, above most analysts' expectations, on strong overseas gains and modest growth in the U.S. despite the impact of severe weather. However, Burger King Holdings Inc. (BKC) said Tuesday that global same-store sales dropped 5.4% as international growth offset some of its problems in North America.

But Burger King's shares, which are essentially flat so far this year, were still up 2.6% at $18.79. McDonald's were off a penny at $65.11.

RBC Capital Markets analyst Lawrence Miller said many of the shares gaining Tuesday were laggards in the restaurant rally so far this year. Sonic Corp. (SONC) rose 6.4% to $9.10. That stock is off 9.8% so far this year.

The Standard & Poor's 500 consumer discretionary sector, which includes restaurants as well as retailers and automobile companies, is up 6.6% so far this year, making it the strongest-performing sector in the index.

With industry trends getting better and valuations more full, Miller said, investors are starting to focus on who might benefit next.

DiFrisco said Sonic is well positioned to participate in a longer-term improving macroeconomic picture, as it's attractively valued, it's not a broken growth company and its stock could have a higher ceiling than some peers that already have participated in the rally.

Meanwhile, Ruby Tuesday Inc. (RT) said Tuesday that it would have seen same-store sales growth at its company-owned restaurants in the latest quarter had it not been for severe weather cutting results at the casual-dining chain by some 1.5 to 2 percentage points.

Ruby Tuesday's shares jumped 8.9% to $9.87. The stock has gained 37% so far this year.

Yum! Brands Inc. (YUM), whose shares are up 4.9% so far this year, rose 3.6% to $36.68 in recent trading after UBS raised its rating on the company to buy from neutral, saying the company, which owns brands including KFC, Pizza Hut and Taco Bell, is turning the corner. Several factors look better than just a few months ago as the stock has underperformed, Taco Bell U.S. seems to have better momentum, Pizza Hut's U.S. trends are improving and China's fast-food sales seem to be stabilizing, UBS wrote in a note to clients.

-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com
Sonic (NASDAQ:SONC)
Historical Stock Chart
From Aug 2024 to Sep 2024 Click Here for more Sonic Charts.
Sonic (NASDAQ:SONC)
Historical Stock Chart
From Sep 2023 to Sep 2024 Click Here for more Sonic Charts.