4 Juicy Restaurant Stocks to Gain on Booming Sales

The U.S. restaurant industry has been adapting to changing consumer tastes and preferences as well as countering stiff competition from e-commerce players. But, things are looking up for those involved in the food business this year.

While sales are expected to reach record-high levels on technological developments, spending at restaurants continue to improve on a healthy labor market. Restaurants are also willing to ramp up hiring. Given the bullishness, investing in sound restaurant companies won’t be a bad proposition.

U.S. Restaurant Industry to See Record Sales

According to the National Restaurant Association (NRA), U.S. restaurant sales are projected to reach a record high of $863 billion this year, up 3.6% from last year. That’s, undoubtedly, a superb growth rate! After all, restaurant sales have contracted as much as 4% over the past decade.

Such booming sales, by the way, are attainable as restaurant operators are optimistic about their business conditions. Nearly three in four operators believe that business conditions are at an ‘excellent’ or ‘good’ shape despite a complex regulatory scenario. They believe that their businesses are way stronger than it was two years back.

But, it’s just not business conditions, restaurant operators have agreed that technology use has rejuvenated their business. More than 70% of quick service restaurant (QSR) operators are thinking of investing in front-of-house, customer servicing technologies like digital ordering and delivery systems, sometimes in collaboration with third-party delivery partners. And some restaurant owners are looking to use back-of-house technologies, including customer-facing tech devices such as tablets, iPads and tableside ordering.

Restaurant Spending Through the Roof

TDn2K’s latest Black Box data has shown that same-store sales returned to positive territory last month after a decline in February. Same-store sales grew 1.2% industry-wide, up 1.8% when compared with March 2017. Same-store sales growth was 1% in the first quarter and the restaurant industry has now recorded four successive quarters of positive same-store sales growth for the first time since 2015.

So, what led to such encouraging sales figures? Solid jobs market and steady rise in wages are cited to be reasons behind this uptick in sales. Hiring increased by an average of 180,000 in the first three months of this year, while jobless rate stayed at 3.8% last month, slightly above a 49-year low.

Meanwhile, average workers’ pay check rose 4 cents to $27.70 an hour last month. The increase in pay may have slowed down to 3.2% from 3.4% in the past 12 months but wages continue to increase at the fastest pace in almost a decade. Consumers, in the meanwhile, remained confident about the U.S. economy despite volatility in the financial markets and a partial government shutdown.

Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, chipped in that there will good income growth for consumers throughout this year, which should translate into solid retail sales and restaurant spending.

Restaurants on a Hiring Spree

Job growth in restaurants, in the meantime, continues to be positive. Per data from the U.S. Census Bureau’s American Community Survey, the restaurant industry has added jobs at a rate more than three times stronger than the broader economy, with annual incomes ranging from $45,000 to $74,999.

To top it, the restaurant industry is expected to create another 1.6 million jobs in the United States by 2029, per NRA. Such a broader hiring spree, thus, indicates that those who are in the food business are in an expansion mode and their businesses are churning out enough profits.

4 Stocks to Suit Your Taste

The restaurant industry is positioned to get its mojo back. We have, thus, selected four solid restaurant stocks that can bolster your portfolio. These stocks flaunt a Zacks Rank #2 (Buy) and a Growth Score of A or B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chipotle Mexican Grill, Inc. CMG, together with its subsidiaries, operates Chipotle Mexican Grill restaurants. The stock has a Growth Score of A. In the past 60 days, the company has seen four earnings estimates move north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.7% in the same period. The company’s expected earnings growth rate for the current year is 35.8%, way more than the Retail - Restaurants industry’s estimated rise of 5.8%.