2 Thriving Restaurant Stocks to Buy on Possible Earnings Beat

Industry Overview - The U.S. restaurant industry is facing challenges such as high wages, food cost inflation, and declining traffic in 2024, following two years of strong growth [1][11] - The Zacks defined Retail – Restaurants industry is currently ranked in the bottom 41% of the Zacks Industry Rank, with a decline of 8.4% over the past year and a year-to-date return of negative 12.7% [1] Positive Performers - Despite the overall industry weakness, certain restaurant stocks have performed well year to date, suggesting potential investment opportunities [2] - Texas Roadhouse (TXRH) has shown a year-to-date stock increase of 40.3%, with expected revenue and earnings growth rates of 15.3% and 33.3%, respectively, for the current year [8] - Wingstop (WING) has a Zacks Rank 1 and reported positive earnings surprises in the last four quarters, with an expected earnings growth rate of 39.5% for the current year [9][21] Sales Performance - According to the Department of Commerce, restaurant and bar sales increased by 4.4% year over year and 0.3% month over month as of June [6] Earnings Expectations - Stocks with a Zacks Rank of 3 or better and a positive Earnings ESP have a 70% chance of beating earnings estimates, indicating potential for appreciation post-earnings release [7] - Both TXRH and WING are identified as stocks likely to beat earnings results this month, with TXRH having an Earnings ESP of +3.90% and WING at +3.08% [13][9] Operational Challenges - The restaurant industry is grappling with high operational costs, including increased pre-opening costs, marketing expenses, and costs related to sales-boosting initiatives, which are affecting profit margins [17][11] - Operators are focusing on digital innovation, sales-building initiatives, and cost-saving efforts to navigate these challenges [22]