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The beginning of the year always holds promise for restaurant stocks, largely because of the holiday season. People tend to dine out more, which translates into strong gains for restaurants and thereby, the industry. What makes it happier is the overall favorable macro backdrop for the industry — gradually declining energy costs and rising consumer confidence.
The industry metrics reflect the positive mood in the restaurant space. Same-store sales for the month of November grew 0.5%, improving after the decline in October, per TDn2K’s Black Box Intelligence. Thus, the industry is expected to post positive same-store sales growth for the upcoming quarters.
Notably, the Restaurant Performance Index (RPI), which tracks the health and outlook of U.S. restaurants, was higher than 100 for November, marking the 29th consecutive month in which the RPI crossed 100, according to National Restaurant Association. Meanwhile, the Current Situation Index that measures trends in four industry indicators — same-store sales, traffic, labor and capital expenditures — was also over 100 for the 21st straight month.
Given the positives, RPI reported during its November report that it expects the restaurant industry to generate sales of more than $709.2 billion in 2015 – marking the sixth consecutive year of real (inflation-adjusted) sales growth for the industry.
However, the industry continues to face certain challenges, such as high food and labor costs, currency headwinds, a cooling Chinese economy and a tightening labor market. On the other hand, traffic has been weak, though it appears to be improving lately.
Zacks Industry Rank – Positive Outlook
Within the Zacks Industry classification, the restaurant industry is grouped within the broader Retail sector. We rank all 260+ industries in the 16 Zacks sectors based on earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank.
As a guideline, the outlook for industries in the top 1/3rd of all Industry Ranks or a Zacks Industry Rank of #88 and lower is 'Positive,' the middle 1/3rd or industries with Zacks Industry Rank between #89 and #176 is 'Neutral' and the bottom 1/3rd or Zacks Industry Rank of #177 and higher is 'Negative.'
The Zacks Industry Rank for the restaurant industry is currently #72. This implies that it is in the top 1/3rd of all industries ranked, highlighting the group’s near-term positive outlook. We believe that the positive outlook reflects gradually improving same-store sales trends.
Earnings Trends
The restaurant industry falls under the broader Retail-Wholesale sector, with an expected earnings and revenue beat ratio of 50% and 0%, respectively, as of Jan 8, 2016, for the fourth quarter.
Third-quarter earnings grew 4.6%, while on the revenue front the sector recorded an increase of 5.2%.
Earnings are expected to decline 0.5% but revenues are expected to grow 5.5%, respectively, in the fourth quarter. The revenue growth will possibly be driven by improving consumer sentiment. For more details about earnings of this sector and others, please read our ‘Earnings Trends’ report.
A Glimpse at Beats & Misses in the Sector
Among the companies in our coverage universe only Darden Restaurants, Inc. (DRI - Free Report) posted its quarterly results for the fourth quarter in December. While earnings beat the Zacks Consensus Estimate, revenues missed the same.
What’s in Store for the Next Quarter?
With fourth-quarter results expected to be released next month, here we have compiled the Earnings ESP for a few companies in our universe. A look at the Earnings ESP in the table below shows that BJ's Restaurants, Inc. (BJRI - Free Report) , Yum! Brands, Inc. (YUM - Free Report) , Brinker International, Inc. (EAT - Free Report) and Panera Bread Company earnings could beat the Zacks Consensus Estimate in the to-be-reported quarter.
Bottom Line
Despite the challenges, 2015-end and the beginning of 2016, has been a period of achievements for the restaurant industry. The industry is expected to sustain its general pace of recovery in the near term, albeit at a slower rate, as it contends with several global economic concerns. It remains to be seen whether the restaurant companies succeed in dealing with the headwinds coming their way.
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Restaurant Industry Stock Outlook - Jan. 2016
Are Restaurants Tastier Going into 2016?
The beginning of the year always holds promise for restaurant stocks, largely because of the holiday season. People tend to dine out more, which translates into strong gains for restaurants and thereby, the industry. What makes it happier is the overall favorable macro backdrop for the industry — gradually declining energy costs and rising consumer confidence.
The industry metrics reflect the positive mood in the restaurant space. Same-store sales for the month of November grew 0.5%, improving after the decline in October, per TDn2K’s Black Box Intelligence. Thus, the industry is expected to post positive same-store sales growth for the upcoming quarters.
Notably, the Restaurant Performance Index (RPI), which tracks the health and outlook of U.S. restaurants, was higher than 100 for November, marking the 29th consecutive month in which the RPI crossed 100, according to National Restaurant Association. Meanwhile, the Current Situation Index that measures trends in four industry indicators — same-store sales, traffic, labor and capital expenditures — was also over 100 for the 21st straight month.
Given the positives, RPI reported during its November report that it expects the restaurant industry to generate sales of more than $709.2 billion in 2015 – marking the sixth consecutive year of real (inflation-adjusted) sales growth for the industry.
However, the industry continues to face certain challenges, such as high food and labor costs, currency headwinds, a cooling Chinese economy and a tightening labor market. On the other hand, traffic has been weak, though it appears to be improving lately.
Zacks Industry Rank – Positive Outlook
Within the Zacks Industry classification, the restaurant industry is grouped within the broader Retail sector. We rank all 260+ industries in the 16 Zacks sectors based on earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank.
As a guideline, the outlook for industries in the top 1/3rd of all Industry Ranks or a Zacks Industry Rank of #88 and lower is 'Positive,' the middle 1/3rd or industries with Zacks Industry Rank between #89 and #176 is 'Neutral' and the bottom 1/3rd or Zacks Industry Rank of #177 and higher is 'Negative.'
The Zacks Industry Rank for the restaurant industry is currently #72. This implies that it is in the top 1/3rd of all industries ranked, highlighting the group’s near-term positive outlook. We believe that the positive outlook reflects gradually improving same-store sales trends.
Earnings Trends
The restaurant industry falls under the broader Retail-Wholesale sector, with an expected earnings and revenue beat ratio of 50% and 0%, respectively, as of Jan 8, 2016, for the fourth quarter.
Third-quarter earnings grew 4.6%, while on the revenue front the sector recorded an increase of 5.2%.
Earnings are expected to decline 0.5% but revenues are expected to grow 5.5%, respectively, in the fourth quarter. The revenue growth will possibly be driven by improving consumer sentiment. For more details about earnings of this sector and others, please read our ‘Earnings Trends’ report.
A Glimpse at Beats & Misses in the Sector
Among the companies in our coverage universe only Darden Restaurants, Inc. (DRI - Free Report) posted its quarterly results for the fourth quarter in December. While earnings beat the Zacks Consensus Estimate, revenues missed the same.
What’s in Store for the Next Quarter?
With fourth-quarter results expected to be released next month, here we have compiled the Earnings ESP for a few companies in our universe. A look at the Earnings ESP in the table below shows that BJ's Restaurants, Inc. (BJRI - Free Report) , Yum! Brands, Inc. (YUM - Free Report) , Brinker International, Inc. (EAT - Free Report) and Panera Bread Company earnings could beat the Zacks Consensus Estimate in the to-be-reported quarter.
Bottom Line
Despite the challenges, 2015-end and the beginning of 2016, has been a period of achievements for the restaurant industry. The industry is expected to sustain its general pace of recovery in the near term, albeit at a slower rate, as it contends with several global economic concerns. It remains to be seen whether the restaurant companies succeed in dealing with the headwinds coming their way.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>