The U.S. restaurant industry has shown remarkable resilience in the face of rising prices and inflationary pressures. With a strong growth trajectory in 2023 that has carried over into the current year, the industry continues to flourish.
Rising Sales in the Restaurant Industry
In February, sales at U.S. food and drinking establishments reached $84.1 billion, marking a 0.4% increase from the previous month, according to the Commerce Department. Year over year, restaurant sales soared by 6.3% in February.
While higher prices have dampened retail sales overall, the restaurant sector has remained unscathed. An increasing number of Americans are indulging in dining out experiences, with consumer spending at restaurants forging ahead. In contrast, overall retail sales only grew by 0.6% in February.
Amid the Federal Reserve’s assertive interest rate hikes totaling 525 basis points, multiple sectors have felt the strain. However, unlike many other service industries, restaurants have stood out in the retail sales report, showcasing a shift in consumer spending patterns towards services over physical goods.
Investing in the Culinary World
Steady growth in restaurant sales is underpinned by robust consumer spending and increased personal income. With consumer spending rising by $145.5 billion and personal income by $66.5 billion in February, the positive outlook for restaurant revenues remains unwavering.
The National Restaurant Association’s State of the Industry Report forecasts record-breaking sales of $1.1 trillion in 2024. This anticipated 10.3% surge from the initial 2023 sales projection heralds the industry’s first foray into the trillion-dollar realm.
Our Prime Selections
Given this promising landscape, investing in restaurant stocks could prove lucrative. We’ve selected five standout stocks for investors: CAVA Group, Inc. (CAVA), Brinker International, Inc. (EAT), Yum China Holdings, Inc. (YUMC), Kura Sushi USA, Inc. (KRUS), and Shake Shack Inc. (SHAK).
These stocks have witnessed positive earnings estimate revisions in the past 60 days and each holds a Zacks Rank of #1 (Strong Buy) or #2 (Buy).
CAVA Group, Inc., known for its Mediterranean fast-casual fare, is expected to achieve an impressive earnings growth rate of 14.3% this year. Brinker International, Inc., the franchise behind Chili’s Grill & Bar and Maggiano’s Little Italy, anticipates an earnings growth rate of 30.7% in the current year.
Yum China Holdings, Inc., operates renowned brands such as KFC, Pizza Hut, and Taco Bell, forecasting an earnings growth rate of 9.5% this year. Kura Sushi USA, Inc., specializing in Japanese cuisine, foresees an outstanding earnings growth rate of 164.3%.
Shake Shack Inc., a well-known presence both domestically and internationally, offers a diverse menu featuring burgers, chicken, and other delectable items. The company expects an earnings growth rate of 91.9% for the current year.
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