Sales at U.S. restaurant restaurants have been steadily growing in 2023 after the industry made a solid turnaround last year. The COVID-19 outbreak crippled the industry as sales came to a standstill in early 2020.

The industry has since bounced back and has been putting up a great show amid inflationary pressures. Although higher costs have made people spend cautiously, it really hasn’t impacted sales much at restaurants.

Given this situation, stocks like Yum China Holdings, Inc. YUMC, McDonald’s Corporation MCD, Carrols Restaurant Group, Inc. TAST, Domino’s Pizza, Inc. DPZ and BJ’s Restaurants, Inc. BJRI are likely to benefit in the near term.

Restaurant Sales Grow Steadily

Sales at U.S. bars and restaurants totaled $91.1 billion in July, increasing 1.4% month over month, according to the National Restaurant Association (NRA). Sales at U.S. restaurants have now increased for the third consecutive month. Sales rose 1.6% in May and 0.8% in June. On a year-over-year basis, sales rose 4.4% in July.

The retail sector is making a solid effort to bounce back as inflationary pressures continue to impact sales. However, sales have continued to multiply at restaurants as consumers aren’t hesitant to spend more on eating out. This bodes well for the restaurant industry.

In the retail sector, the Zacks Defined Restaurant Industry is presently ranked in the upper 19% among all industries, boasting a year-to-date return of 5.3%.

According to the NRA, the restaurant industry is on track for solid growth in 2023. The food service industry is projected to reach $997 billion in sales this year. Moreover, the workforce at U.S. restaurants is projected to increase by 50,000 jobs, which is likely to take the total industry employment to 15.5 million by the end of this year.

Several factors are driving sales in the restaurant industry. This can be attributed to fundamental factors like shifts in operational methods, workforce changes, layout enhancements and technological progress.

Restaurant proprietors are also shifting focus toward digital innovations, sales enhancement strategies, and cost-effective initiatives. The growing influence of the Internet has made digital evolution indispensable. Also, notable restaurant chains are continuously partnering with delivery services and digital platforms to generate supplementary revenues.

Also, inflation has been steadily declining over the past year, having more than halved from its 9.1% peak in June 2022. The Fed has increased interest rates by 525 basis points since March 2022 to take its benchmark rate to the range of 5.25% to 5.5%.

The monetary tightening policy has helped bring down inflation substantially, which has raised hopes that the Fed could finally end its interest rate hike campaign. Lower borrowing gives consumers more purchasing power, which is likely to further help the restaurant industry.

Our Choices

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

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 96.2%. The Zacks Consensus Estimate for current-year earnings has improved 3.5% over the past 60 days. YUMC currently carries a Zacks Rank #2 (Buy).

McDonald’s Corporation is a leading fast-food chain that currently operates more than 39,000 restaurants in more than 100 countries. MCD mainly operates and franchises quick-service restaurants under the McDonald’s brand. Nearly 93% of McDonald’srestaurants worldwide are owned and operated by independent local businessmen as well as women.

McDonald’s expected earnings growth rate for the current year is 13.8%. The Zacks Consensus Estimate for current-year earnings has improved 4% over the past 60 days. MCD currently has a Zacks Rank #2.

Carrols Restaurant Group, Inc. is the largest BURGER KING franchisee in the United States, with over 800 restaurants. TAST has operated BURGER KING restaurants since 1976.

Carrols Restaurant Group’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. TAST currently sports a Zacks Rank #1.

Domino’s Pizza, Inc., which delivers pizzas under the Domino’s Pizza brand, is a top player in the Quick-Service Restaurant or QSR Pizza category. Through its subsidiaries, DPZ operates as a pizza delivery company in the United States and internationally, with 18,800 locations in more than 90 markets.

Domino’s Pizza’s expected earnings growth rate for the current year is 9.6%. The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the past 60 days. DPZ currently has a Zacks Rank #2.

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 more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 24.7% over the past 60 days. Presently, BJRI has a Zacks Rank #1.
BJ’s Restaurants, Inc. (BJRI): Free Stock Analysis Report

McDonald’s Corporation (MCD): Free Stock Analysis Report

Domino’s Pizza Inc (DPZ): Free Stock Analysis Report

Carrols Restaurant Group, Inc. (TAST): Free Stock Analysis Report

Yum China (YUMC): Free Stock Analysis Report

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