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3 Restaurant Stocks to Watch Despite Industry Challenges
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The Zacks Retail – Restaurants industry continues to navigate a challenging macroeconomic environment, high costs and dismal traffic. However, the industry is benefiting from an increase in sales, driven by rapid menu price hikes, average check growth and expansion efforts. Industry participants also benefit from partnerships with delivery channels and digital platforms. Stocks like Dutch Bros Inc. (BROS - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) are well-poised to benefit from the factors mentioned above.
Industry Description
The Zacks Retail – Restaurants industry comprises several owners and operators of casual, upscale casual, fine dining, full-service and fast-casual restaurants. Some industry participants operate as roasters, marketers and retailers of specialty coffee. Some companies develop, operate and franchise quick-service restaurants worldwide. A few restaurant operators offer cooked-to-order dishes, including noodles and pasta, soups, salads and appetizers. Some industry players develop, own, operate, manage and license restaurants and lounges worldwide. A few companies also run technology-enabled Japanese restaurants in the United States and provide Japanese cuisine through a revolving sushi service model.
4 Trends Shaping the Future of the Restaurant Industry
Challenging Market Landscape: The industry is currently grappling with a challenging macroeconomic environment, led by persistent inflation and reduced consumer purchasing power. The restaurant industry has been facing declining traffic for quite some time. A rapid increase in menu prices is the primary reason behind traffic erosion. This decline highlights the ongoing challenges that the industry faces in maintaining customer counts, especially as consumers grow frustrated with rising prices.
Intense competition and high wages are concerning. The industry continues to bear increased expenses, which have been affecting margins. Higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on the company’s margins.
Robust Sales Growth: Restaurant sales continued their strong momentum in August, as consumers remained committed to dining out despite economic uncertainties. According to preliminary figures from the U.S. Census Bureau, sales at eating and drinking establishments reached $99.5 billion in August on a seasonally adjusted basis, reflecting a 0.7% increase from July’s revised total of $98.8 billion.
Digitalization to Drive Growth: Restaurant operators’ focus on digital innovation, sales-building initiatives and cost-saving efforts has been a catalyst. With the growing influence of the Internet, digital innovation is the need of the hour. Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales. Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, and the rollout of self-service kiosks and loyalty programs continue to drive growth.
Off-Premise Sales Act as Key Catalyst: The industry is gaining from the increase in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks. Most restaurant operators have initiated the testing of ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service has been garnering positive customer feedback.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Restaurant industry is grouped within the broader Retail-Wholesale sector. It carries a Zacks Industry Rank #214, which places it in the bottom 11% of more than 243 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500 & Sector
The Zacks Retail – Restaurants industry has underperformed the Zacks S&P 500 composite and its sector over the past year.
Over this period, the industry has declined 12.7% against the Zacks S&P 500 composite’s rise of 22.3%. The sector has risen 12.9%.
1-Year Price Performance
Restaurant Industry's Valuation
Based on the forward 12-month P/E, a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 22.6X compared with the S&P 500’s 23.82X. It is below the sector’s forward 12-month P/E ratio of 25.05X.
Over the past five years, the industry traded as high as 33.45X and as low as 22.25X, the median being 25.52X.
P/E (F12M)
3 Key Restaurant Picks
Dutch Bros: The company is emerging as one of the fastest-growing players in the U.S. coffee market, with its expansion strategy showing tangible results. Backed by strong unit-level economics, disciplined real estate planning and a people-first culture that fuels execution, Dutch Bros has a long runway of growth ahead. For investors seeking a high-growth coffee stock with national expansion potential, BROS presents a compelling case.
Red Robin Gourmet Burgers: The company has been benefiting from menu innovation, improved hospitality standards and the revamped loyalty program. Also, strong progress in restaurant-level profitability and disciplined cost management bodes well. With internal execution strengthening, the company expects the progress to continue in the upcoming periods.
Shares of this Zacks Rank #2 company have declined 14% in the past year. In the past 60 days, the company’s loss per share has narrowed to 60 cents from a loss of $1.41.
Price and Consensus: RRGB
BJ's Restaurants: The company is benefiting from efforts focused on growing traffic, enhancing operational efficiency and improving restaurant-level profitability. Ongoing remodeling efforts and menu innovations continue to strengthen brand positioning, while management is advancing work on a new prototype design that better reflects the brand’s identity.
Shares of this Zacks Rank #3 (Hold) company have gained 1.6% in the past year. BJRI’s 2025 sales and earnings are anticipated to rise 3% and 45.6%, respectively, year over year.
Price and Consensus: BJRI
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3 Restaurant Stocks to Watch Despite Industry Challenges
The Zacks Retail – Restaurants industry continues to navigate a challenging macroeconomic environment, high costs and dismal traffic. However, the industry is benefiting from an increase in sales, driven by rapid menu price hikes, average check growth and expansion efforts. Industry participants also benefit from partnerships with delivery channels and digital platforms. Stocks like Dutch Bros Inc. (BROS - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) are well-poised to benefit from the factors mentioned above.
Industry Description
The Zacks Retail – Restaurants industry comprises several owners and operators of casual, upscale casual, fine dining, full-service and fast-casual restaurants. Some industry participants operate as roasters, marketers and retailers of specialty coffee. Some companies develop, operate and franchise quick-service restaurants worldwide. A few restaurant operators offer cooked-to-order dishes, including noodles and pasta, soups, salads and appetizers. Some industry players develop, own, operate, manage and license restaurants and lounges worldwide. A few companies also run technology-enabled Japanese restaurants in the United States and provide Japanese cuisine through a revolving sushi service model.
4 Trends Shaping the Future of the Restaurant Industry
Challenging Market Landscape: The industry is currently grappling with a challenging macroeconomic environment, led by persistent inflation and reduced consumer purchasing power. The restaurant industry has been facing declining traffic for quite some time. A rapid increase in menu prices is the primary reason behind traffic erosion. This decline highlights the ongoing challenges that the industry faces in maintaining customer counts, especially as consumers grow frustrated with rising prices.
Intense competition and high wages are concerning. The industry continues to bear increased expenses, which have been affecting margins. Higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on the company’s margins.
Robust Sales Growth: Restaurant sales continued their strong momentum in August, as consumers remained committed to dining out despite economic uncertainties. According to preliminary figures from the U.S. Census Bureau, sales at eating and drinking establishments reached $99.5 billion in August on a seasonally adjusted basis, reflecting a 0.7% increase from July’s revised total of $98.8 billion.
Digitalization to Drive Growth: Restaurant operators’ focus on digital innovation, sales-building initiatives and cost-saving efforts has been a catalyst. With the growing influence of the Internet, digital innovation is the need of the hour. Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales. Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, and the rollout of self-service kiosks and loyalty programs continue to drive growth.
Off-Premise Sales Act as Key Catalyst: The industry is gaining from the increase in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks. Most restaurant operators have initiated the testing of ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service has been garnering positive customer feedback.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Restaurant industry is grouped within the broader Retail-Wholesale sector. It carries a Zacks Industry Rank #214, which places it in the bottom 11% of more than 243 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500 & Sector
The Zacks Retail – Restaurants industry has underperformed the Zacks S&P 500 composite and its sector over the past year.
Over this period, the industry has declined 12.7% against the Zacks S&P 500 composite’s rise of 22.3%. The sector has risen 12.9%.
1-Year Price Performance
Restaurant Industry's Valuation
Based on the forward 12-month P/E, a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 22.6X compared with the S&P 500’s 23.82X. It is below the sector’s forward 12-month P/E ratio of 25.05X.
Over the past five years, the industry traded as high as 33.45X and as low as 22.25X, the median being 25.52X.
P/E (F12M)
3 Key Restaurant Picks
Dutch Bros: The company is emerging as one of the fastest-growing players in the U.S. coffee market, with its expansion strategy showing tangible results. Backed by strong unit-level economics, disciplined real estate planning and a people-first culture that fuels execution, Dutch Bros has a long runway of growth ahead. For investors seeking a high-growth coffee stock with national expansion potential, BROS presents a compelling case.
Shares of this Zacks Rank #2 (Buy) company have gained 68.3% in the past year. BROS’s 2025 sales and earnings are anticipated to rise 25% and 38.8%, respectively, year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: BROS
Red Robin Gourmet Burgers: The company has been benefiting from menu innovation, improved hospitality standards and the revamped loyalty program. Also, strong progress in restaurant-level profitability and disciplined cost management bodes well. With internal execution strengthening, the company expects the progress to continue in the upcoming periods.
Shares of this Zacks Rank #2 company have declined 14% in the past year. In the past 60 days, the company’s loss per share has narrowed to 60 cents from a loss of $1.41.
Price and Consensus: RRGB
BJ's Restaurants: The company is benefiting from efforts focused on growing traffic, enhancing operational efficiency and improving restaurant-level profitability. Ongoing remodeling efforts and menu innovations continue to strengthen brand positioning, while management is advancing work on a new prototype design that better reflects the brand’s identity.
Shares of this Zacks Rank #3 (Hold) company have gained 1.6% in the past year. BJRI’s 2025 sales and earnings are anticipated to rise 3% and 45.6%, respectively, year over year.
Price and Consensus: BJRI