4 Solid Restaurant Stocks to Buy on Soaring Sales

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The retail sector has held fort despite soaring commodity prices thanks to robust job additions to the economy and rising personal income. One of the biggest drivers of sales has been restaurants and bars, which have witnessed steady growth since the economy reopened following the lockdown in March-April 2020.

After making a solid rebound in 2022, restaurant sales saw a solid jump to begin this year. Given this situation, stocks like Bloomin’ Brands, Inc. (BLMN – Free Report) , Chuy’s Holdings, Inc. (CHUY – Free Report) , Yum China Holdings, Inc. (YUMC – Free Report) and Arcos Dorados Holdings Inc. (ARCO – Free Report) are likely to benefit in the near term.

Restaurant Sales Soar

Retail sales jumped 3% month over month in January, improving significantly after falling 1.1% in December, according to the Department of Commerce. The figures also surpassed analysts’ expectations of a jump of 1.7%. Sales at bars and restaurants played a major role in driving January retail sales.

The Commerce Department reported that sales at bars and restaurants climbed a solid 7.2% month over month in January.

A separate report from Mastercard SpendingPulse, released on Mar 9, shows sales were robust in February as well. Sales at restaurants and bars rose a solid 14.2% in February.

These reports came as the latest data revealed that inflation increased 0.5% in January after rising by 0.1% in December. Consumers are having a hard time owing to rising commodity prices, which is making them spend cautiously.

However, that hasn’t deterred their spending on eating out at restaurants. In fact, consumers have been steadily increasing their spending at restaurants, which is boosting sales.

Although the industry has been making an effort to bounce back since the beginning of 2021, the re-emergence of COVID-19 variants like Delta and Omicron hampered sales. The picture started looking brighter in early 2022 after the COVID-induced restrictions were completely lifted, and the economy was back to normal.

Also, at typical times, people frequently spend more on services than on goods. Due to lack of options, this altered during the pandemic outbreak, with customers spending more on commodities than services.

However, now that everything is back to normal, consumers have started spending more on services once again. Restaurants is the only service category that classifies as retail sales.

Soaring sales are definitely good, but price challenges are now a major concern, although the industry is doing its best to overcome this hurdle.

The jump in sales can also be attributed to the strengthening of fundamentals, including modifications to technology, employees, workplace layouts, and operating procedures.

Restaurant owners are working very hard to overcome the problems that still exist, particularly the rising costs. Restaurants are also heavily focusing on digital innovation, trying to boost sales, and putting cost-cutting measures into place, which is aiding the industry’s recovery.

Our Choices

Given this situation, it would be ideal to invest in these four restaurant stocks.

Bloomin’ Brands, Inc. is a casual dining restaurant company with a portfolio of differentiated restaurant concepts. BLMN has five concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s. Bloomin’ Brands offers its products and services through company-owned and franchised locations throughout the United States and internationally.

Bloomin’ Brands’ expected earnings growth rate for the current year is 15.1%. The Zacks Consensus Estimate for current-year earnings has improved 6.6% over the past 60 days. BLMN currently has a Zacks Rank #2 (Buy).

Chuy’s Holdings, Inc. owns and operates full-service restaurants serving a distinct menu of authentic Mexican food. CHUY offers a menu, which 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’ expected earnings growth rate for the current year is 19%. The Zacks Consensus Estimate for current-year earnings has improved 13.2% over the past 60 days. CHUY currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Yum China Holdings, Inc. operates both company-owned and franchised restaurants. YUMC’s brands include The KFC, Pizza Hut and Taco Bell. The company also owns East Dawning, Little Sheep, and COFFii & JOY.

Yum China Holdings’ expected earnings growth rate for the current year is 70.5%. The Zacks Consensus Estimate for current-year earnings has improved 7.8% over the past 60 days. YUMC currently has a Zacks Rank #2.

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 100%. The Zacks Consensus Estimate for current-year earnings has improved 20.4% over the past 60 days. Currently, ARCO has a Zacks Rank #2.

This article was originally published on this site