The U.S. restaurant industry had a difficult 2020 and 2021, with uneven sales volume, as the pandemic posed a barrier to the smooth functioning of the industry. Even then, the restaurant industry put up an impressive show in 2021 compared to a year earlier. And this year too seems to be good so far, with sales growing in February.

The jump in restaurant sales in February comes despite rising costs and fears of the Omicron variant of coronavirus. Given this scenario, stocks like Dave & Buster's Entertainment, Inc. (PLAY Quick QuotePLAY - Free Report) , BBQ Holdings, Inc. , Arcos Dorados Holdings Inc. (ARCO Quick QuoteARCO - Free Report) and Compass Group PLC (CMPGY Quick QuoteCMPGY - Free Report) are likely to perform well in the near term.

Restaurant Sales Jump

The Census Bureau said last week that both retail and restaurant sales increased in February. According to the report, sales at bars and restaurant in the United States rose 2.5% in February. This follows a 1% decline in January.

One of the major reasons behind January’s decline was a rise in Omicron cases that saw many avoiding stepping out of their homes. However, the scene changed in February. As cases started declining, people gathered the courage to visit restaurants, resulting in a jump in sales.

Rising costs have been a cause of concern that has been keeping people from spending more. This saw retail sales slowing in February. According to the Census Bureau’s report, retail sales grew 0.3% in February.

However, rising costs didn’t stop people from spending at bars and restaurants. Also, restrictions have now been relaxed further, which is seeing people spend more at restaurants.

Restaurant Industry Bouncing Back

Restaurant sales have been uneven because every time a new COVID-19 wave comes, footfall plummets and so do sales.

Even then, the picture hasn’t been that gloomy. After taking a bad hit in 2020, sales bounced back in 2021 and since then the industry has been gradually recovering. According to a report from Toast, the all-in-one platform built for restaurants, total restaurant sales grew 41% year over year in 2021.

Moreover, as restrictions started getting lifted following the massive vaccination drive, dining out picked up in 2021. Dining out increased 70% in the fourth quarter of 2021 compared to the same period a year earlier. On a year-over-year basis, dining out jumped 55% in 2021.

Also, with people planning vacations this spring, travel is on the rise. As a result, restaurant sales are expected to increase in the coming months.

Our Choices

Given the situation, it would be ideal to invest in restaurant stocks. We have shortlisted four restaurant stocks, each carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dave & Buster's Entertainment, Inc. is a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families. The core concept of PLAY’s chain is “Eat Drink Play and Watch,” all in one location. Under the Eat concept, Dave & Buster's Entertainment offers a wide variety of starters, burgers, choice-grade steaks and health-conscious food.

Dave & Buster's Entertainment’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days. PLAY sports a Zacks Rank #1.

BBQ Holdings, Inc. operates and franchises barbeque restaurants and blues clubs. BBQ currently owns locations and franchises locations in Minnesota, Wisconsin, Illinois, Iowa, Nebraska, Utah, Maryland and Virginia and has signed development agreements for additional franchised locations. BBQ Holdings’ menu features award-winning barbecued and grilled meats, an ample selection of salads, side items, sandwiches and unique desserts.

BBQ Holdings’ expected earnings growth rate for the current year is 66.2%. The Zacks Consensus Estimate for current-year earnings has improved 25.5% over the past 60 days. BBQ sports a Zacks Rank #1.

Arcos Dorados Holdings Inc. operates as a franchisee of McDonald's with its operations divided in Brazil; North Latin America division; South Latin America and the Caribbean division. ARCO also runs quick-service restaurants in Latin America and the Caribbean.

Arcos Dorados’ expected earnings growth rate for the current year is 54.2%. The Zacks Consensus Estimate for current-year earnings has improved 15.6% over the past 60 days. ARCO has a Zacks Rank #2.

Compass Group PLC provides food and support services to its customers globally through its subsidiaries. CMPGY serves customers in offices and factories; schools and universities; hospitals and senior living communities; major sports and cultural venues; and remote mining camps and offshore platforms. Compass Group’sfood service segment offers services in the form of free-flow restaurants, formal dining restaurants, grab-and-go deli and café outlets and vending.

Compass Group’s expected earnings growth rate for the current year is 87.8%. The Zacks Consensus Estimate for current-year earnings has improved 4.1% over the past 60 days. CMPGY carries a Zacks Rank #2.