5 Stocks to Make the Most of Booming Restaurant Sales
The U.S. restaurant industry started staging a solid turnaround last year, and sales have since then been on the rise. This comes after difficulties during the pandemic when sales tumbled as people almost stopped eating out. The lingering effects of the pandemic continued till early 2022 before the rebound.
The rebound came despite rising price pressures. Although consumers have been spending cautiously over the past year and cutting down on unnecessary expenses, sales at restaurants haven’t been hampered.
Given this situation, stocks like Arcos Dorados Holdings Inc. ARCO, BJ's Restaurants, Inc. BJRI, Domino's Pizza, Inc. DPZ, McDonald's Corporation MCD and Chuy's Holdings, Inc. CHUY are likely to benefit in the near term.
Restaurant Sales Make Solid Rebound
According to the National Restaurant Association (NRA), sales at restaurants and bars grew a solid 1.4% month over month in July, totaling $91.1 billion. This follows a 1.6% rise in sales in May and 0.8% in June, marking the third straight month of increase.
On a year-over-year basis, restaurant sales grew 4.4% in July.
The retail sector has been under tremendous pressure as sky-high inflation has been impacting sales. However, the sector is still trying to hold its ground as higher demand for goods and services is making people spend more.
Restaurants are the only service sector included in the monthly retail sales report. Restaurants have also largely been responsible for saving the retail sector during these trying times as consumers have continued to shell out unhesitatingly on eating out despite high prices.
In the retail sector, the Zacks Defined Restaurant Industry is presently ranked in the upper 19% among all industries, boasting a year-to-date return of 5%.
Inflation has been cooling over the past year, having declined by more than half from its peak of 9.1% in June 2022. In order to combat multi-decade high inflation, the Federal Reserve has implemented a series of interest rate hikes, totaling 525 basis points since March 2022, which has taken its benchmark rate to the range of 5.25% to 5.5%.
The Federal Reserve's monetary tightening policy has played a significant role in reducing inflation, raising expectations that the Fed might consider ending its interest rate hike campaign. Lower cost of borrowing provides consumers with increased purchasing power, which can benefit various sectors, including the restaurant industry, as it can lead to higher consumer spending.
Moreover, a combination of factors is helping drive sales at restaurants. These include fundamental changes in operational methods, workforce dynamics, improvements in layout and design, and advancements in technology. Restaurant owners are increasingly prioritizing digital innovations, strategies to boost sales, and cost-effective measures to stay competitive. The pervasive influence of the Internet has made digital evolution essential for success.
Moreover, prominent restaurant chains are consistently partnering with delivery services and digital platforms to generate additional revenue streams, capitalizing on the trend of customers ordering food online and having it delivered. This adaptation to changing consumer preferences and technological trends is crucial for staying competitive in the modern restaurant landscape.
Our Choices
Given this situation, it would be ideal to invest in these five restaurant stocks.
Arcos Dorados Holdings Inc. operates as a franchisee of McDonald's, with its operations divided in Brazil, the North Latin America division, South Latin America and the Caribbean division. ARCO also runs quick-service restaurants in Latin America and the Caribbean.
Arcos Dorados’ expected earnings growth rate for the current year is more than 13%. The Zacks Consensus Estimate for current-year earnings has improved 8.3% over the past 60 days. Currently, ARCO has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BJ's Restaurants, Inc. owns and operates a chain of high-end casual dining restaurants in the United States. BJRI’s menu offers a wide range of dining options, including everyday lunch and dinner, special occasions and late-night business.
BJ's Restaurants’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 28.2% over the past 60 days. Presently, BJRI has a Zacks Rank #1.
Domino's Pizza, Inc., which delivers pizzas under the Domino’s Pizza brand, is a top player in the Quick-Service Restaurant or QSR Pizza category. Through its subsidiaries, DPZ operates as a pizza delivery company in the United States and internationally, with 18,800 locations in more than 90 markets.
Domino's Pizza’s expected earnings growth rate for the current year is 9.5%. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 60 days. DPZ currently has a Zacks Rank #2.
McDonald's Corporation is a leading fast-food chain that currently operates more than 39,000 restaurants in more than 100 countries. MCD mainly operates and franchises quick-service restaurants under the McDonald’s brand. Nearly 93% of McDonald'srestaurants worldwide are owned and operated by independent local businessmen as well as women.
McDonald's expected earnings growth rate for the current year is 13.8%. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the past 60 days. MCD currently has a Zacks Rank #2.
Chuy's Holdings, Inc. owns and operates full-service restaurants serving a distinct menu of authentic Mexican food. CHUY offers a menu that includes appetizers, soups and salads, tacos, burritos, enchiladas, fajitas and combination platters. Chuy's Holdings operates chains throughout Texas, Alabama, Indiana, Kentucky and Tennessee. Chuy's Holdings, Inc. is headquartered in Austin, TX.
Chuy's Holdings’ expected earnings growth rate for the current year is 32.9%. The Zacks Consensus Estimate for current-year earnings has improved 4% over the past 60 days. CHUY presently carries a Zacks Rank #2.
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BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
McDonald's Corporation (MCD) : Free Stock Analysis Report
Domino's Pizza Inc (DPZ) : Free Stock Analysis Report
Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
