Despite facing inflationary pressures, restaurant sales in August saw an uptick, driven by a rapid rise in menu prices, growth in average checks, and ongoing expansion efforts. This marks the sixth consecutive month of sales growth for the industry. Industry players also reap rewards from their collaborations with delivery services and digital platforms.
The industry has been capitalizing on the growth of off-premise sales, which predominantly encompass delivery, takeout, drive-thru, catering and meal kits and off-site alternatives like kiosks and food trucks.
Sales Increase in August
Per the U.S. Census Bureau, eating and drinking places recorded total sales of $90.8 billion on a seasonally adjusted basis in August, up 0.3% from July’s downward-revised sales volume of $90.5 billion. The metric increased 8.2% on a year-over-year basis.
Most restaurant operators are also gaining from implementing ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service is steadily garnering positive customer feedback.
We have identified three restaurant stocks that will likely benefit from increasing sales and have robust top-line growth despite inflationary pressure. These include McDonald’s Corporation MCD, Domino’s Pizza, Inc. DPZ and Yum China Holdings, Inc. YUMC.
3 Prominent Picks
McDonald’s: McDonald’s is a leading fast-food chain with more than 39,000 restaurants in over 100 countries. The company benefits from its strong comparable restaurant sales growth, digital initiatives, campaigns and loyalty programs. During the second quarter of 2023, digital dales (from the top six markets) came in at $8 billion, contributing 40% to the company’s system-wide sales.
MCD has a long-term earnings growth expectation of 8.9%. This Zacks Rank #2 (Buy) stock has a trailing four-quarter earnings surprise of 9.5%, on average. The company’s earnings and sales in 2023 are likely to witness a growth of 13.8% and 9.8% year over year, respectively.
Domino’s: The company benefits from strong comps growth driven by a solid digital ordering system and higher global retail sales. This and its focus on menu additions bode well. DPZ’s accretive global expansion initiatives position it in more than 90 global markets, thus adding to its growth trend. The company operates as a pizza delivery company in the United States and internationally, with 20,008 locations in more than 90 markets.
DPZ has a long-term earnings growth expectation of 13%. This Zacks Rank #2 stock has a trailing four-quarter earnings surprise of 4.7%, on average. The company’s earnings in 2023 are likely to witness a growth of 9.6% year over year.
Yum China: The company operates and franchises restaurants in the People’s Republic of China. The company benefiting from menu innovation, unit expansion and digitalization efforts. The company is gradually shifting toward digital and content marketing to expand its customer base.
YUMC has a long-term earnings growth expectation of 20.6%. This Zacks Rank #2 stock has a trailing four-quarter earnings surprise of 31.7%, on average. The company’s earnings and sales in 2023 are likely to witness a growth of 96.2% and 17.4% year over year, respectively.
McDonald’s Corporation (MCD): Free Stock Analysis Report
Domino’s Pizza Inc (DPZ): Free Stock Analysis Report
Yum China (YUMC): Free Stock Analysis Report
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