3 Stocks to Watch on Soaring Restaurant Sales Amid Price Challenges

Sales at U.S. restaurants and drinking places jumped in June as the industry’s northbound journey continues amid renewed market optimism. The restaurant industry has put up an impressive show amid inflationary challenges, which proves that people are willing to spend despite high prices.

Given this scenario, it would be wise to invest in restaurant stocks such as Yum China Holdings, Inc. YUMC, Brinker International, Inc. EAT and Cracker Barrel Old Country Store, Inc. CBRL. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Restaurant Sales Jump

The Commerce Department reported that sales at U.S. restaurants totaled $98.7 billion in June, up 0.6% month over month from May’s revised total of $98.2 billion. Economists consider dining out a key indicator of household finances.

The robust jump in June suggests that the economy remains stable, and even amid rising prices, consumers are still spending more at restaurants and bars. This surge in restaurant sales is being powered by a jump in overall retail sales.

Retail sales also rose 0.6% sequentially in June after unexpectedly declining in the prior month. Inflation has eased over the past few months, but uncertainty over President Donald Trump’s tariffs, as the Aug. 1 deadline nears, has raised concerns about the impact of the duties on the nation’s economy. 

Solid retail sales, driven by a surge in spending at restaurants, will provide the Federal Reserve with cover to keep its interest rates unchanged in the range of 4.25-4.5% at its two-day July policy meeting, which concludes on July 30. However, robust consumer spending is expected to continue boosting restaurant sales. Also, investors are hopeful that if not in July, the Fed will still implement two 25-basis-point rate cuts this year, which is likely to benefit the industry further.

3 Restaurant Stocks With Upside

Yum China Holdings

Yum China Holdings operates both company-owned and franchised restaurants. YUMC’s 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 12.8%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 90 days. YUMC currently has a Zacks Rank #2.

Brinker International, Inc.

Brinker International, Inc. primarily owns, operates, develops and franchises various restaurants under the Chili’s Grill & Bar and Maggiano’s Little Italy brands. EAT took over Chili’s, Inc., a Texas corporation, in September 1983 and completed the acquisition of Maggiano’s in August 1995. Chili’s is a preeminent leader in the bar & grill category of casual dining. The brand has been functioning for over the last 40 years.

Brinker International’s expected earnings growth rate for next year is 10.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. EAT currently has a Zacks Rank #3.

Cracker Barrel Old Country Store

Cracker Barrel Old Country Store, Inc. is engaged in the ownership and operation of full-service restaurants, with a restaurant and a retail store in the same unit. CBRL serves home-style country food, including meatloaf, homemade chicken n' dumplings, as well as its signature biscuits using an old family recipe.

Cracker Barrel Old Country Store’s expected earnings growth rate for next year is 9.4%. The Zacks Consensus Estimate for current-year earnings has improved 14.3% over the past 60 days. CBRL currently has a Zacks Rank #1.

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This article originally published on Zacks Investment Research (zacks.com).

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