During the pandemic-triggered lockdown, many prominent restaurants around the country shifted their business models drastically in a bid to keep up with the changing scenario. The digital innovation and adoption of new business models not only made these companies resilient during the pandemic but also ensured that these can continue to avail new-found methods to keep up with the demand for their products and generate revenues the way they did in the pre-pandemic environment.
Let us therefore take a look at some of these stocks and note how they managed to survive the coronavirus-led rout and came out of the lockdown with, in some cases, record sales.
Reshaping Business Models During Lockdown
The restaurant industry in the country was thrown in the middle of the international health crisis in early-March, when the Trump administration declared a national emergency. During the lockdown that followed in the same month, consumers around the country were confined to their homes, with no option for dining out as restaurants and other places of dining were closed.
However, the industry soon implemented its new mode, which was business only via off-premise services, which meant that restaurants around all 50 states could ensure sales via delivery, takeout, drive-through, catering, meal kits and other off-site methods such as food trucks and kiosks. This led to high demand for food products over April and May, as more people got used to this new and only means of receiving their food from restaurants.
A major reason why this new trend of food consumption is here to stay is that the model ensures of a no-contact delivery system, which many people still prefer despite a reopened economy since April-end. Ordering and picking up food ensures minimal contact and assures more safety at a time when the number of COVID-19 cases are on the rise.
More than 30,000 additional cases were reported on Jun 19, the highest number of confirmed one-day infections since May 1, per the data by Johns Hopkins University. Given this spike in new infections, one can only anticipate that off-premise sales of restaurants could witness an uptick ahead, as people are likely to avoid dining-out for some time now.
4 Restaurant Stocks to Buy
We have chosen four stocks of restaurants that have delivered impressive price performances over the past one-three months and could continue to do so, given the persistent demand for takeaway, drive-through and similar business models. All of these stocks carry a Zacks Rank #2 (Buy) and belong to the Zacks Retail - Restaurantsindustry. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Wendy's Company’sWEN shift into the takeout-only business model helped the company keep up with its sales during the pandemic. In fact, the company witnessed a rise in sales, thanks to its new order of business. Wendy’s has witnessed an impressive response to its new breakfast menu during the pandemic, with sales of the said products making up as much as 8% of total sales.
Wendy's expects earnings growth of 27.5% for the next year. Shares of the company have gained 91.4% over the past three months compared to the industry’s growth of 40.9% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 34.2% north in the past 60 days.
Jack in the Box Inc. JACK usually has about two-third of its total sales via drive-through system and another 15% through takeout. According to CEO Lenny Comma, drive-throughs have turned out to be the most efficient mode during trying times such as these. In fact, Jack in the Box’s sales were up 10% in the first week of May.
Jack in the Box’s expected earnings growth rate for the next year is 22.9%. Shares of the company have gained more than 100% over the past three months. The Zacks Consensus Estimate for the company’s current-year earnings has moved 22.5% north in the past 60 days.
Papa John's International, Inc. PZZA reported its best sales growth for the second straight month in May, with as much as a 33% rise in comparable store sales. In April, the company reported 27% sales growth. Papa John's International offered extensive carryout and delivery services during the lockdown, which helped to boost its sales. The company’s No Contact Delivery services also spurred consumer demand.
Papa John's International’s expected earnings growth rate for the next year is 32.4%. Shares of the company have gained 53.9% over the past three months. The Zacks Consensus Estimate for the company’s current-year earnings has moved 11.3% north in the past 60 days.
Domino's Pizza, Inc. DPZ has operations in 90 countries, with 6,156 stores in the United States alone. The company reported last month that its U.S. same-store sales rose 14% in April and May, with a 20.9% rise from Apr 20 to May 17.
The company attributed this spike in demand to the rising trend of delivery and takeout. The company responded to this demand with contactless services, which could boost demand for its products further ahead.
Domino's Pizza’s expected earnings growth rate for the next year is 5.8%. Shares of the company have gained 1.7% over the past month compared to the industry’s growth of 0.8% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 8% north in the past 60 days.
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