3 Restaurant Stocks to Watch Despite Industry Challenges

Core Insights - The Zacks Retail – Restaurants industry is facing a challenging macroeconomic environment but is experiencing sales growth due to menu price hikes and expansion efforts [1][3][5] Industry Overview - The industry includes various types of restaurants, from casual to fine dining, and also encompasses specialty coffee operations and quick-service franchises [2] Current Trends - The industry is grappling with persistent inflation and reduced consumer purchasing power, leading to declining traffic as menu prices rise [3] - Increased competition and high wages are contributing to rising expenses, affecting profit margins [4] Sales Performance - Restaurant sales reached $99.5 billion in August, marking a 0.7% increase from July's revised total of $98.8 billion, indicating strong consumer commitment to dining out [5] Digital Innovation - Restaurant operators are focusing on digital initiatives and partnerships with delivery platforms to drive sales growth [6] Off-Premise Sales - The rise in off-premise sales, including delivery and takeout, is positively impacting the industry, with many operators testing ghost kitchens [7] Industry Ranking - The Zacks Restaurant industry holds a Zacks Industry Rank of 214, placing it in the bottom 11% of over 243 Zacks industries, indicating dull near-term prospects [8][9] Stock Performance - The industry has underperformed the S&P 500, declining 12.7% over the past year compared to the S&P 500's rise of 22.3% [11] Valuation Metrics - The industry is trading at a forward 12-month P/E of 22.6X, below the S&P 500's 23.82X and the sector's 25.05X [14] Company Highlights - Dutch Bros Inc. (BROS): Emerging as a fast-growing player in the coffee market with a projected 25% sales growth and 38.8% earnings growth in 2025 [17][18] - Red Robin Gourmet Burgers (RRGB): Benefiting from menu innovation and improved profitability, with a narrowed loss per share [21][22] - BJ's Restaurants, Inc. (BJRI): Focused on traffic growth and operational efficiency, with anticipated sales growth of 3% in 2025 [25][26]