Americans are spending aggressively on eating out. The restaurant industry has done fairly well amid several challenges, especially higher energy costs. The industry has grown at a steady pace this year, with sales rising once again in June.
Restaurateurs have also been aggressively redesigning menus and rolling out special promotions, discounts and value-focused meals to meet customer demands and preferences.
Given this situation, it would be ideal to invest in restaurant stocks with a strong online presence. We have selected four stocks, namely, BJ's Restaurants, Inc. BJRI, The Cheesecake Factory Incorporated CAKE, Texas Roadhouse, Inc. TXRH and Yum China Holdings, Inc. YUMC.
Restaurant Sales Grow
Sales at eating and drinking places in the United States totaled $102.5 billion, up 0.1% on a seasonally adjusted basis in June, according to data from the Commerce Department. May’s restaurant sales totaled $102.4 billion.
Sales at restaurants grew 3.8% in June from the year-ago levels. Consumers have been spending aggressively at restaurants this year, with sales totaling $603.9 billion in the first six months of the year. Sales have now grown in four of the last five months.
Higher gasoline prices since the U.S.-Iran war began in late February have posed a major challenge for restaurants. Energy costs eased in June but remain almost a dollar higher than they were at the beginning of the U.S.-Iran conflict.
However, several other factors have been boosting consumer spending. Tax refunds have been helping consumers spend more freely at restaurants. Also, a resilient labor market has been giving consumers the confidence to spend aggressively. Inflation also eased in June, as oil prices fell substantially, which saw the Federal Reserve leave interest rates unchanged in its July FOMC meeting.
Higher prices have put additional pressure on restaurant owners as customers become more careful with their spending and increasingly seek meals that offer better value. Quick-service restaurants, particularly those known for their affordability, have performed better than many of their peers in a difficult environment.
As more price-conscious consumers look for budget-friendly meals, competition in the value segment has intensified. Restaurant brands are responding with promotions, discounts and value-oriented combo deals designed to attract and retain customers.
Despite the challenges, demand for affordable dining remains steady. Many restaurant chains are increasing their marketing efforts, pursuing partnerships and introducing new menu items to remain competitive and drive repeat visits.
4 Restaurant Stocks With Upside
BJ's Restaurants
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 4%. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the past 60 days. Presently, BJRI has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Cheesecake Factory
The Cheesecake Factory Incorporated owns and operates 370 restaurants throughout the United States and Canada under brands, including The Cheesecake Factory and North Italia, Flower Child and a collection within the Fox Restaurant Concepts subsidiary. Internationally, CAKE operates 36 Cheesecake Factory restaurants under licensing agreements. It operates two bakery production facilities as well.
The Cheesecake Factory’s expected earnings growth rate for the current year is 17.5%. The Zacks Consensus Estimate for current-year earnings has improved 10.5% over the past 60 days. CAKE currently has a Zacks Rank #1.
Texas Roadhouse
Texas Roadhouse, Inc. is a full-service, casual dining restaurant chain, which offers 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.
Texas Roadhouse’s expected earnings growth rate for the current year is 7.9%. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 60 days. TXRH presently has a Zacks Rank #2.
Yum China Holdings
Yum China Holdings operates both company-owned and franchised restaurants. YUMC’s brands include 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 17.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the past 60 days. YUMC currently has a Zacks Rank #2.
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BJ's Restaurants, Inc. (BJRI): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).