6 Restaurant Stocks Set To Serve Up Earnings Beat This Season

As the Q2 earnings season comes knocking, investors may want to look at the U.S. restaurant space which has been showing signs of recovery.

The latest Earnings Preview (as of Jul 13) shows upbeat expectations from this earnings season, with the bottom line of the S&P 500 index expected to grow 19.5% and revenues projected to rise 8.2%. Notably, releases from 27 S&P 500 companies so far show year-over-year earnings and revenue growth of 19.1% and 9.7%, respectively. Moreover, 88.9% of the companies surpassed earnings and revenue estimates.

Restaurant Industry Looks Up

After surviving the seven-quarter spell of declining comps, the restaurant industry made a spectacular comeback in the fourth quarter of 2017. Ever since the industry has been recovering, slow yet steady. Per TDn2K’s The Restaurant Industry Snapshot, the industry witnessed comps growth in three straight quarters — 0.4% in fourth-quarter 2017, 0.1% in first-quarter 2018 and 0.8% in the second quarter. In the first half of 2018, overall sales nudged up 0.5% against a 1.2% fall in the first half of 2017.

Growth in comps throughout the first half of 2018 can be attributed to the rise in consumer demand and discretionary spending. This is evident from the guest check’s growth in recent quarters. For the first six months of 2018, average check increased 2.9%, up from the 2.2% rise a year ago. In the first half of 2018, the casual dining and fast casual category saw the maximum improvement, reflecting a shift in consumer taste and preference. Meanwhile, most gains in the industry were derived from to-go and delivery sales.

Restaurant Bigwigs Gear Up

Per a National Restaurant Association report, the majority of restaurant operators are chalking out capital expenditure plans for the remainder of the year. Notably, 64% of restaurant companies are planning to expand, remodel and innovate across menu offerings over the next six months. Digital innovation has also become the need of the hour. Restaurant operators are continuously partnering with delivery channels and digital platforms to drive incremental sales. We believe that such efforts will continue to benefit the industry for the rest of 2018. Also, a favorable effect on consumers’ personal income from tax cut is sure to act as a catalyst.

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