Despite several macro headwinds, the restaurant industry is poised for significant growth and expansion in the foreseeable future, driven by steady consumer spending, regained customer confidence in full-service dining, the increasing popularity of takeout, and the adoption of digital technologies.
To capitalize on the industry’s growth, we think it could be wise to invest in fundamentally sound restaurant stocks Luckin Coffee Inc. (LKNCY), Bloomin’ Brands, Inc. (BLMN), and Chuy’s Holdings, Inc. (CHUY) for potential gains. Let’s understand this in detail.
The demand for dining out remains steadfast, indicating that the appetite for dining experiences persists despite the challenges posed by macroeconomic uncertainty.
Deloitte’s latest restaurant study, carried out in March, revealed that 55% of customers reported maintaining or increasing their level of in-person dining compared to pre-pandemic times. Moreover, 69% of respondents indicated that their frequency of takeout or delivery was either unchanged or higher than it was a few years ago.
Forrest Morgeson, Assistant Professor of Marketing at Michigan State University and Director of Research Emeritus, said, “This year we’re seeing customer satisfaction returning to pre-pandemic levels for full-service dining, while fast food outlets have rebounded to within a point of their 2019 score.”
According to preliminary data from the U.S. Census Bureau, eating and drinking places registered total sales of $88 billion in May, marking a 0.4% increase from April’s downward-revised volume of $87.70 billion. Notably, consumer spending in restaurants witnessed an impressive 8% growth over the past 12 months.
Furthermore, the growing demand for food takeout should drive the restaurant industry’s growth. Many establishments have adapted to this trend by operating ghost kitchens dedicated to takeout and delivery. Additionally, customers are embracing automation and restaurant technology, with drones and driverless car delivery options gaining popularity.
Innovative restaurant concepts are also bolstering the industry’s prospects. Yelp’s State of the Restaurant Industry Report 2023 highlights an impressive 105% growth in new pop-up restaurants between April 2022 and March 2023. These findings demonstrate the restaurant industry’s dynamic nature and the increasing appeal of distinctive dining experiences.
As per a report by Research and Markets, the fast food and quick service restaurant market is anticipated to grow at a 6.1% CAGR and reach $371.47 billion by 2027.
Given the industry’s promising prospects, investing in robust restaurant stocks LKNCY, BLMN, and CHUY could be wise for solid returns.
Let’s now discuss in detail what makes these stocks worthwhile investments.
Luckin Coffee Inc. (LKNCY)
Headquartered in Xiamen, China, LKNCY provides retail services for freshly brewed drinks and pre-made food and beverages. The company also offers its customers Luckin Pop premium instant coffee and inspirational cups through mobile apps and e-commerce platforms. It applies new retail models for coffee sales and services.
During its first quarter of 2023, LKNCY opened 1,137 net new stores, reinforcing its solid position to capitalize on resurging consumer demand. Dr. Jinyi Guo, Chairman and CEO of LKNCY, said, “With more than 9,300 stores, we are proud to say that Luckin Coffee is China’s largest coffee chain brand.”
During the same quarter, LKNCY also made a significant move towards its international expansion strategy by inaugurating two new stores in Singapore. This overseas launch marks a crucial milestone for the company, serving as the initial phase of its entrance into international markets.
For the first quarter that ended March 31, 2023, LKNCY’s net revenues increased 84.5% year-over-year to $646.04 million. Its non-GAAP operating income rose 692.7% from the year-ago value to $106.37 million. Also, the company’s non-GAAP net income and non-GAAP net income per share grew 522.6% and 500% year-over-year to $89.83 million and $0.03, respectively.
Over the past three years, LKNCY’s revenue grew at a 66.5% CAGR. The company’s total assets also increased at a CAGR of 2.4% over the same period.
Over the past year, the stock has gained 66.9% to close the last trading session at $21.29.
LKNCY’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
LKNCY has an A grade for Quality and a B for Growth, Momentum, and Sentiment. It has ranked #6 in the 45-stock A-rated Restaurants industry.
In addition to the POWR Ratings I’ve just highlighted, you can see LKNCY’s ratings for Stability and Value here.
Bloomin' Brands, Inc. (BLMN)
BLMN is a casual dining restaurant company. Its U.S. segment operates 1,011 restaurants and franchises 153 restaurants across 47 states. The International segment operates 175 restaurants and franchises 168 restaurants and kitchens across 13 countries and Guam.
In the fiscal 2023 first quarter release, BLMN announced the repurchase of 1.1 million shares for $27 million as of April 26, 2023. This strategic move has the potential to enhance the company’s stock value and positively impact its financial statements.
For the first quarter that ended March 26, 2023, BLMN revenues increased 9.1% year-over-year to $1.24 billion. Its income from operations rose 12.5% from the year-ago value to $120.63 million. Furthermore, net income attributable to BLMN grew 20.9% year-over-year to $91.32 million, while adjusted EPS came in at $0.98, a 22.5% year-over-year increase.
BLMN’s revenue is expected to grow 7.1% year-over-year to $4.73 billion for the fiscal year ending December 2023. Similarly, the company’s EPS is expected to come in at $2.95 for the current year, a 17% year-over-year improvement. Moreover, the company topped its consensus EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 28.8% over the past six months and 43.6% over the past year to close the last trading session at $26.43.
BLMN’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
BLMN has a B grade for Growth, Value, Quality, and Momentum. It is ranked #7 out of 45 stocks within the Restaurants industry.
Click here to access additional BLMN ratings (Stability and Sentiment).
Chuy's Holdings, Inc. (CHUY)
CHUY develops and operates Chuy’s restaurants, a full-service restaurant concept specializing in Mexican and Tex-Mex-inspired food. The company operates approximately 98 restaurants across 17 states. Moreover, all CHUY restaurants offer a full-service bar with a variety of beverage options for customers.
In its latest quarterly release, CHUY announced the opening of its inaugural restaurant for 2023 in Fayetteville, Arkansas. This expansion is expected to benefit the company by broadening its geographic reach, attracting new customers, increasing revenue streams, and potentially enhancing its regional brand recognition.
Moreover, continuing the top-line momentum from the previous quarter, CHUY delivered robust comparable restaurant sales performance in the first quarter. As a result, the company anticipates an adjusted net income per diluted share of $1.71 to $1.76 for the fiscal year 2023, compared to $1.37 in 2022.
For the first quarter that ended March 26, 2023, CHUY’s revenue increased 12% year-over-year to $112.50 million. Its income from operations rose 37.6% from the year-ago value to $8.37 million. Also, the company’s adjusted net income and adjusted net income per share grew 30.8% and 38.2% year-over-year to $8.51 million and $0.47, respectively.
The consensus revenue estimate of $463.39 million for the fiscal year (ending December 2023) reflects a 9.8% year-over-year improvement. Likewise, the consensus EPS estimate of $1.75 for the ongoing year indicates a 27.5% rise year-over-year. Moreover, the company surpassed the consensus EPS estimates in all four trailing quarters.
Shares of CHUY have gained 41.7% over the past six months and 95% over the past year to close the last trading session at $40.45.
CHUY’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
CHUY has a B grade for Momentum and Quality. It has ranked #8 out of 45 stocks within the same industry.
Click here to access additional CHUY ratings for Growth, Value, Stability, and Sentiment.
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LKNCY shares were trading at $21.28 per share on Wednesday afternoon, down $0.01 (-0.03%). Year-to-date, LKNCY has declined -3.36%, versus a 14.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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