Back to top

Image: Bigstock

4 Restaurant Stocks to Buy on Soaring Sales

Read MoreHide Full Article

Sales at U.S. restaurants have been growing steadily as higher costs are making people shell out more. While rising costs are worrying, given that inflation is at a 41-year high, they also show that people still can and are willing to shell out more.

The restaurant industry, which got battered during the peak of the pandemic, is again faced with challenges but has managed to hold its ground as sales are on the rise. In fact, employers are also on a hiring spree as sales continue to skyrocket at U.S. restaurants. Given this scenario, stocks like Arcos Dorados Holdings Inc. (ARCO - Free Report) , Portillo's Inc. (PTLO - Free Report) , Kura Sushi USA, Inc. (KRUS - Free Report) , Yum China Holdings, Inc. (YUMC - Free Report) are likely to benefit in the near term.

Restaurant Sales Rise Amid Challenges

Restaurant sales rose 1% in June, after rising 0.7% in May. This comes as retail sales grew 1% in June, indicating that the sector hasn’t succumbed to the inflationary pressures.

The only service that is part of retail sales is the restaurant space. Despite a rise in commodity prices, restaurant sales have been on the rise. This suggests that consumers who had been spending more on goods since the pandemic began are now once spending more on services.

The pandemic had a significant impact on the services sector since part of the economy had to be shut down. From the beginning of 2021, the economy steadily reopened, and the services sector showed a rebound. However, there were setbacks in the form of the coronavirus Delta and Omicron strains, which once more delayed the services sector's recovery.

Things started to improve around the end of last year. The restaurant industry has once again benefited from higher expenditure on services.

However, the industry is facing several challenges, the biggest being soaring prices. People have been spending cautiously on necessities like food and fuel and are cutting down on luxuries. Although sales are growing at restaurants, a chunk of the higher sales has to be attributed to the higher prices of food items.

That, however, doesn’t matter so long as restaurants and bars are recording higher sales and generating more revenues. According to the Nation’s Restaurant News Top 500 report, 340 of the 500 restaurants in the United States recorded positive sales growth compared to 202 out of 500 in 2020.

Higher sales at restaurants have also seen employers go on a hiring spree. Sales improvement means a higher footfall, which has prompted steady growth in hiring at restaurants across the United States.

In fact, the restaurant and hotel industries are at the top of the list of employers that have been actively recruiting since the start of the year. The latest report from the Labor Department shows that the U.S. economy added a healthy 372,000 jobs in June, which is more than the 268,000 predicted by economists.

Of these, 67,000 new jobs were added in the hospitality and leisure industry. This is unmistakably a sign that the sector is promising growth and that staffing decisions are being made with the prospect of increased foot traffic and revenues in the foreseeable future.

Our Choices

People are aggressively spending at restaurants and sales are likely to get a further boost in the coming days. Given the situation, it would be ideal to invest in restaurant stocks.

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 more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 20.5% over the past 60 days. ARCO has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Portillo's Inc. provides a fast-casual restaurant concept known for its menu of Chicago-style favorites. PTLO is based in CHICAGO.

Portillo's expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 11.1% over the past 60 days. PTLO carries a Zacks Rank #2.

Kura Sushi USA, Inc. operates as a restaurant. KRUS offers nigiri, roll, hand roll, gunkan and desserts. Kura Sushi USA Inc. is based in Irvine.

Kura Sushi USA’s expected earnings growth rate for the current year is 89%. Shares of KRUS have gained 8.3% year to date. Kura Sushi USA has a Zacks Rank #2.

Yum China Holdings, Inc. operates both company-owned and franchised restaurants. YUMC pays a license fee to Yum! Brands, which equals 3% of net system sales from both company-owned and franchise restaurants. Yum China Holdings’ 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 next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 25% over the past 60 days. YUMC has a Zacks Rank #2.