3 Restaurant Stocks to Buy Despite Ongoing Industry Pressures

Industry Overview - The Zacks Retail – Restaurants industry is facing a challenging macroeconomic environment characterized by high costs and declining traffic, but is experiencing sales growth due to menu price hikes and average check growth [1][3] - Industry participants are leveraging partnerships with delivery channels and digital platforms to enhance sales [1] Industry Description - The industry includes various types of restaurants, from casual to fine dining, and also encompasses operators of specialty coffee and quick-service restaurants [2] Current Trends - The restaurant industry is grappling with persistent inflation and reduced consumer purchasing power, leading to declining traffic due to rising menu prices [3] - Intense competition and high wages are contributing to increased expenses, affecting profit margins [4] Future Outlook - The National Restaurant Association projects U.S. restaurant sales to reach approximately $1.55 trillion by 2026, with slight employment growth expected [5] - Restaurants are investing in technology and workforce development to enhance efficiency and guest experiences [5] Digitalization and Off-Premise Sales - Digital innovation and partnerships with delivery services are driving growth, with operators focusing on cost-saving initiatives [6] - The increase in off-premise sales, including delivery and takeout, is positively impacting the industry [7] Industry Performance - The Zacks Restaurant industry has underperformed the S&P 500, declining 6.6% over the past year compared to the S&P 500's rise of 15.8% [10] - The industry is currently trading at a forward 12-month P/E of 25.08X, higher than the S&P 500's 22.9X [13] Key Company Insights - Brinker International: Focused on driving traffic and revenues through menu innovation and better service platforms, with anticipated sales and earnings growth of 8% and 19.8% for fiscal 2026 [16][17] - Yum China: Benefiting from strong delivery momentum and plans to open over 1,900 new stores by 2026, with projected sales and earnings growth of 7.4% and 15.9% [20][21] - BJ's Restaurants: Enhancing operational efficiency and brand positioning through remodeling and menu innovations, with expected sales and earnings growth of 2.4% and 3.3% for 2026 [24][23]