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4 Restaurant Stocks to Buy on Continued Surge in Sales

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Rising costs have been a worrying factor, but the retail sector doesn’t seems to have been affected much. As millions of Americans continue to spend more, the restaurant industry is fast getting back on its feet after almost two years from the time sales started plunging owing to the COVID-19 pandemic.

Sales at bars and restaurants rose in April, indicating that people are willing to spend despite rising costs. Also, restaurants have started hiring aggressively over the past few months, which indicates that the industry is roaring back to the pre-pandemic levels. Given this scenario, stocks like BBQ Holdings, Inc. (BBQ - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) , The ONE Group Hospitality, Inc. (STKS - Free Report) and Bloomin' Brands, Inc. (BLMN - Free Report) are likely to perform well in the near term.

Restaurant Sales Surge

The Commerce Department said on May 17 that sales at U.S. bars and restaurants rose a solid 2% month over month in April. On a year-over-year basis, restaurant sales jumped 19.8%. The jump comes as an increasing number of people continued to dine at eateries, following the decline in new COVID-19 cases over the past few months.

April’s gains come as the overall retail sector continued to perform well despite multiple challenges, including inflationary pressures and supply-chain crisis. This saw retail sales increasing 0.9% in April.

Restaurants and bars played an important role in driving the overall retail sales. People cut back on spending on services during the pandemic, opting instead to spend more on commodities. Moreover, due to the COVID-induced lockdown, they didn't have much of an option in terms of spending on services.

However, things are finally changing and people have started spending on services, which is helping to drive restaurant sales.

Restaurant Industry Poised to Grow

The restaurant industry became one of the biggest casualties of the COVID-19 pandemic as footfall continued to decline as most people stayed indoors for all of 2020 and most of 2021. However, the situation now appears to be improving, with businesses and industries resuming their normal operations.

The industry started to get back on its feet last year but multiple COVID-19 variants like Delta and Omicron hampered sales from time to time as hospitalizations increased.

However, things started changing this year. People are stepping out with more confidence after having taken the vaccine. This has seen spending on services like travel, hotels and restaurants once again surging.

Yet, there are challenges aplenty, with rising costs being one of the biggest.

That said, the industry looks confident about bouncing back as hiring is on the rise once again to tackle the pressure of surging sales. The Labor Department said on May 6 that the United States added 428,000 nonfarm payrolls in April, surpassing expectations of 400,000.

Of these, 44,000 jobs were added to the restaurant industry. This shows not only the strength in the economy but also the confidence of restaurateurs, who are on a hiring spree to meet customer demand.

Moreover, a report from the National Restaurant Association shows that sales at bars and restaurants in the United States will be a lot better in 2022 than last year. The report says that restaurant sales will reach $898 billion this year and return to the pre-pandemic level.

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.

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 67.6%. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the past 60 days. BBQ carries a Zacks Rank #2.

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 66.7%. The Zacks Consensus Estimate for current-year earnings has improved 8.1% over the past 60 days. ARCO has a Zacks Rank #2.

The ONE Group Hospitality, Inc. operates as a hospitality company. STKS develops, manages and operates a portfolio of high-energy restaurants, lounges and bars. The ONE Group Hospitality also provides food and beverage hospitality solutions. STKS’ primary restaurant brand is STK, which is a steakhouse concept with locations in metropolitan cities throughout the United States and in London.

The ONE Group Hospitality’s expected earnings growth rate for the current year is 27.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the past 60 days. STKS has a Zacks Rank #2.

Bloomin' Brands, Inc. is a casual dining restaurant company with a portfolio of differentiated restaurant concepts. BLMN has five concepts: Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Fleming's Prime Steakhouse and Wine Bar and Roy's. Bloomin' Brands offers its products and services through company owned and franchised locations throughout the United States and internationally.

Bloomin' Brands’ expected earnings growth rate for the next year is 13.6%. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the past 60 days. BLMN has a Zacks Rank #2.

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