Early in the year, Americans were scared because they didn't know where the stock market or real estate was headed. Many wondered whether they'd have a job for very long. It looked to some as if the end of the world was upon us. For this reason, many refused to go out and spend money on things they don't need, and casual dining chains took a major foot traffic hit. But the story doesn't end there, because it turns out that shares of some larger players in this space actually rebounded sharply.

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A Closer Look At The Action

In March the stock market began to rebound, and other signs (such as strong housing start data in February) indicated that our economy was moving away from what some have termed "the abyss". And while consumers have been relatively slow to return to their free-spending ways, many felt that our nation would eventually emerge from the recession.

In short, stocks in the dining space started to trade higher, perhaps in anticipation of brighter days. For example, Darden Restaurants (NYSE: DRI), known for its Red Lobster chains, saw its shares rise from the mid-$20 level to more than $30 per share. Meanwhile, Brinker International (NYSE: EAT), popular for its tasty Chili's chain, saw its stock jump from around $10 to more than $13 a share. And finally DineEquity (NYSE: DIN), known for Applebees and IHOP, saw its stock rise from the single digits to more than $20. Those aren't the biggest percentage gainers on Wall Street, but it was a respectable rebound for those stocks in a relatively short time.

Interestingly, on the earnings front Darden surprised the Street by beating expectations four quarters straight. Meanwhile, Brinker beat the Street in three of the past four quarters, and DineEquity squashed estimates four quarters straight. In short, this has attracted attention to the space, too.

The Competition
All that said, competition in the food industry has become incredibly strong, and many full-service casual dining locations are offering coupons or specials to attract diners. In addition, chains like McDonald's (NYSE: MCD) and Burger King (NYSE: BKC), two of the big names in fast food, are offering some of their items at very low prices, which in turn is grabbing the attention of consumers watching their pocketbooks. Whether this cutthroat type action continues remains to be seen. I suspect that it will in 2010.

Bottom Line
Despite the fact that consumers were very tight with their money in 2009, some of the larger casual dining chains saw their stocks do very well as mentioned above. In addition, some of the large names did a good job beating analyst estimates. But unfortunately, the competition in this space is tough, and there is concern that this competitiveness could spill over into 2010. (Learn more about restaurant stocks; read Sinking Your Teeth Into Restaurant Stocks.)

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Tickers in this Article: EAT, DRI, DIN, MCD, BKC

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