The economy is gradually reopening, and after taking a beating for almost two months, restaurants and cafes have finally started witnessing growth in sales. June was the second consecutive month that saw the second-straight month of growth in restaurant sales after a record low in April.
Also, many workers who were furloughed have started joining back, indicating that the industry has finally started showing some confidence. Although, the United States has been witnessing a surge in coronavirus cases over the past couple of weeks, it is quite unlikely that the government will go for a shutdown again. This is a big relief for the restaurant industry.
Restaurant Sales Grow in June
Restaurant and food service sales totaled $47.4 billion in June, marking the second straight month of growth after sales hit a low of $30 million in April, according to the National Restaurant Association (NRA). Total restaurant sales in May were $39.5 billion. The jump in June comes after a dismal March and April, when restaurants missed out on an expected $116 billion in total sales due to the coronavirus-induced lockdown.
June sales were primarily driven by the reopening of many states that saw people visiting cafes and restaurants. However, the month’s sales dropped more than 25% year over year, likely pushing the total shortfall for restaurants and food service sales to more than $145 billion over the last four months, according to the NRA.
Room for Further Growth Despite Second COVID-19 Wave
Fears of a second wave of coronavirus are making many skeptical but it is unlikely that the Fed will go for a complete shutdown of businesses. People are maintaining social distance and restaurants too are taking adequate measures keeping in mind the safety of customers and dinners. Although the number of seated diners in the United States is down 64.1% this year as of Jul 15 from the same period a year ago, many have been opting for online delivery.
Moreover, many restaurants are converting into drive through only. Restaurants and cafes, which already have a strong online presence or have takeaway and drive through facilities, were comparatively less ruffled during the peak of infections.
Also, accommodation and food services businesses received $41.87 billion from the Paycheck Protection Program, the fifth-highest amount across all sectors, according to the Small Business Administration. The NRA is now calling on Congress to pass legislation that would provide targeted relief for eateries.
Job additions in restaurants and bars in the past couple of months is another sign that the sector is improving. Food services and drinking places added 1.5 million jobs in June for a seasonally adjusted total of 9.2 million, which is 23.7% fewer jobs than the sector had the same time a year ago, according to the Bureau of Labor Statistics.
Our Choices
Given this scenario, restaurant stocks should appear rather appealing to investors. We have shortlisted four stocks with a Zacks Rank #1 (Strong Buy) and Zacks Rank 2 (Buy) that are likely to bring sumptuous returns in the coming days.You can see the complete list of today’s Zacks #1 Rank stocks here.
Dominos Pizza Inc DPZ, through its subsidiaries, operates as a pizza delivery company in the United States and internationally, with over 15,900 locations in more than 85 markets.
The company’s expected earnings growth rate for the current year is 26.7%. The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 60 days. Dominos Pizza sports a Zacks Rank #1.
Papa John’s International, Inc. PZZA operates and franchises pizza delivery and carryout restaurants in the United States and other specific international markets. The company’s dine-in and delivery restaurants operate under the brand name Papa John’s.
The company’s expected earnings growth rate for the current year is 8.6%. The Zacks Consensus Estimate for current-year earnings has improved 9.5% over the past 60 days. Papa John’scarries a Zacks Rank #1.
Potbelly (NASDAQ:PBPB) Corporation PBPB manages establishments for consuming food on premises to offers sandwiches, salads, soups, chili, chips, cookies, ice cream and smoothies. It serves customers throughout the United States.
The company’s expected earnings growth rate for the current year is more than 100%. It shares have gained 5.2% in the past 30 days. Potbelly Corporationhas a Zacks Rank #2.
Dine Brands Global (NYSE:DIN), Inc. DIN operates and franchises restaurants under both the Applebee's Neighborhood Grill & Bar and IHOP brands. The company's Applebee's restaurants offer casual food, drinks, casual dining, and table services and IHOP restaurants provide full table services, and food and beverage offerings.
The company’s expected earnings growth rate for next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 24% over the past 60 days. Dine Brandscarries a Zacks Rank #1.
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