U.S. restaurants continue to flourish in 2024 after performing impressively for the last two years. Restaurant sales were not impacted much by severe inflationary pressure. The momentum is likely to continue for the rest of 2024.
Strong Restaurant Sales in April
The Department of Commerce reported that sales at U.S. bars and restaurants (adjusted for seasonal variation and holiday sales but not for price changes) came in at $93.9 billion in April, up 0.2% from March. Year over year, spending at restaurants and bars rose 5.5% in April. Although higher interest rates troubled customers, they did not cut down on spending at restaurants and bars.
The restaurant industry is gradually witnessing improving sales. The improvement can be attributed to the enhancement in fundamentals such as modifications in business processes, staffing, floor plans and technology.
Restaurant operators’ focus on digital innovation, sales-building initiatives, and cost-saving efforts have been acting as major catalysts. With the growing influence of the Internet, digital innovation has become the need of the hour. Big restaurant chains are constantly partnering with delivery channels and digital platforms to drive incremental sales.
The restaurant industry is consistently gaining from the spike in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks, owing to the coronavirus pandemic. Per NRA, more than 60% of restaurant foods are consumed off-premise.
By 2025, off-premise is likely to account for approximately 80% of the industry’s growth. The idea of providing off-premise offerings along with a connected curbside service is steadily garnering positive customer feedback.
Our Top Picks
We have narrowed our search to five restaurant stocks that have strong growth potential for 2024. These stocks have seen positive earnings estimate revision in the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
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Wingstop Inc. WING franchises and operates restaurants. WING’s operating segment consists of the Franchise and Company segments. WING offers classic wings, boneless wings, and tenders that are cooked-to-order, and hand-sauced-and-tossed in various flavors.
Zacks Rank #1 Wingstop has an expected revenue and earnings growth rate of 27.5% and 36.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 13% over the last 30 days.
Texas Roadhouse Inc. TXRH is a full-service, casual dining restaurant chain offering assorted seasoned and aged steaks hand-cut daily on the premises and cooked to order over open gas-fired grills. TXRH operates restaurants under the Texas Roadhouse and Aspen Creek names.
TXRH offers its guests a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, an assortment of hamburgers, salads and sandwiches. TXRH also provides supervisory and administrative services for other licensed and franchise restaurants.
Zacks Rank #2 Texas Roadhouse has an expected revenue and earnings growth rate of 14.9% and 31.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.8% over the last 30 days.
Brinker International Inc. EAT primarily owns, operates, develops and franchises various restaurants under Chili’s Grill & Bar and Maggiano’s Little Italy brands. In the last reported quarter, EAT registered benefits from effective marketing and pricing strategies.
EAT also reported sequential improvements in guest traffic, surpassing industry benchmarks. Also, focus on menu adjustments bodes well. EAT intends to focus on balancing value offerings with margin expansion and adaptability to changing consumer preferences to drive growth.
Zacks Rank #2 Brinker International has an expected revenue and earnings growth rate of 5% and 39.2%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 6.2% over the last 30 days.
CAVA Group Inc. CAVA is a category-defining Mediterranean fast-casual restaurant brand that brings heart, health and humanity to food. CAVA offers salads, dips, spreads, toppings, and dressings. CAVA sells its products through whole food markets and grocery stores. CAVA also provides online food ordering services.
Zacks Rank #2 CAVA Group has an expected revenue and earnings growth rate of 20% and 19.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the last 60 days.
The ONE Group Hospitality Inc. STKS is a restaurant company that develops, owns, operates, manages, and licenses restaurants and lounges worldwide. STKS operates through STK, Kona Grill, and ONE Hospitality segments. STKS also provides turn-key food and beverage services for hospitality venues, including hotels, casinos, and other locations.
STKS’ hospitality food and beverage solutions include developing, managing, and operating restaurants, bars, rooftops, pools, banqueting, catering, private dining rooms, room service, and mini bars; and offers hospitality advisory and consulting services.
Zacks Rank #2 The ONE Group Hospitality has an expected revenue and earnings growth rate of more than 100% and 79.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the last 30 days.
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