Chicago, IL – May 21, 2025 – Today, Zacks Equity Research discusses CAVA Group, Inc. CAVA, Wingstop Inc. WING and BJ's Restaurants, Inc. BJRI.
Link: https://www.zacks.com/commentary/2474627/3-restaurant-stocks-that-stand-tall-amid-industry-challenges
The Zacks Retail – Restaurants industry continues to navigate a challenging macroeconomic environment, high costs and dismal traffic. However, the industry is benefiting from an increase in sales driven by rapid menu price hikes, average check growth and expansion efforts. Industry participants also benefit from partnerships with delivery channels and digital platforms. Stocks like CAVA Group, Inc., Wingstop Inc. and BJ's Restaurants, Inc. are well-poised to benefit from the aforementioned factors.
The Zacks Retail – Restaurants industry comprises several owners and operators of casual, upscale casual, fine dining, full-service and fast-casual restaurants. Some industry participants operate as roasters, marketers and retailers of specialty coffee. Some companies develop, operate and franchise quick-service restaurants worldwide.
A few restaurant operators offer cooked-to-order dishes, which include noodles and pasta, soups, salads and appetizers. Some industry players develop, own, operate, manage and license restaurants and lounges worldwide. A few companies also run technology-enabled Japanese restaurants in the United States and provide Japanese cuisine through a revolving sushi service model.
Challenging Market Landscape: The industry is currently grappling with a challenging macroeconomic environment, driven largely by persistent inflation and reduced consumer purchasing power. The restaurant industry has been facing declining traffic for quite some time. A rapid increase in menu prices is the primary reason behind traffic erosion. This decline highlights the ongoing challenges that the industry faces in maintaining customer counts, especially as consumers grow frustrated with rising prices.
Intense competition and high wages are concerning. The industry continues to bear increased expenses, which have been affecting margins. Higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on the company's margins.
Robust Sales Growth: Restaurant sales continued their strong momentum in April, as consumers remained committed to dining out despite economic uncertainties. According to preliminary data from the U.S. Census Bureau, eating and drinking establishments generated $99.1 billion in seasonally adjusted sales, marking a steady increase from the previous month.
Digitalization to Drive Growth: Restaurant operators' focus on digital innovation, sales-building initiatives and cost-saving efforts has been a catalyst. With the growing influence of the Internet, digital innovation is the need of the hour. Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales. Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, and the rollout of self-service kiosks and loyalty programs continue to drive growth.
Off-Premise Sales Act as Key Catalyst: The industry is gaining from the increase in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks. Most restaurant operators have initiated the testing of ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service has been garnering positive customer feedback.
The Zacks Restaurant industry is grouped within the broader Retail-Wholesale sector. It carries a Zacks Industry Rank #182, which places it in the bottom 26% of more than 245 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry's position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry's recent stock-market performance and valuation picture.
The Zacks Retail – Restaurants industry has underperformed the Zacks S&P 500 Composite and its sector over the past year.
Over this period, the industry has grown 8% compared with the Zacks S&P 500 Composite's jump of 11.7%. The sector has risen 18.1%.
Based on the forward 12-month P/E, a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 26.55X compared with the S&P 500's 21.89X. It is above the sector's forward 12-month P/E ratio of 23.95X.
Over the last five years, the industry traded as high as 34.30X and as low as 22.26X, the median being at 25.83X.
CAVA: The company is benefiting from strategic expansion efforts and continued enhancements across its digital and in-restaurant experiences. With a differentiated Mediterranean brand proposition and disciplined execution, the company appears well-positioned to sustain its growth trajectory. In fiscal 2025, the company expects to open 64-68 net new CAVA restaurants, up from the prior range of 62-66. It expects same-restaurant sales growth to be in the range of 6-8%, while the restaurant-level profit margin is anticipated to be between 24.8% and 25.2%.
Shares of this Zacks Rank #2 (Buy) company have gained 15.2% in the past year. CAVA's 2025 sales and earnings are anticipated to rise 24.4% and 31%, respectively, year over year. You can seethe complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Wingstop: Wingstop is likely to benefit from digital efforts, unit expansion and strategic partnerships. Wingstop is leveraging AI-powered kitchen technology to modernize its back-of-house operations. This initiative aims to significantly reduce quote times, improve consistency and unlock additional demand, especially during high-traffic periods such as lunch.
Shares of this Zacks Rank #2 company have gained 42.6% in the past three months. WING's 2025 sales and earnings are anticipated to rise 16.6% and 6.3%, respectively, year over year.
BJ's Restaurants: The company is benefiting from increased guest traffic across all dayparts and channels. Sales-driving initiatives like the Pizookie Meal Deal and holiday large party offerings, supported by targeted marketing, are continuously boosting brand awareness and traffic momentum.
Shares of this Zacks Rank #2 company have surged 23.1% in the past year. BJRI's fiscal 2025 sales and earnings are anticipated to rise 3.2% and 23.8%, respectively, year over year.
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