3 Top Restaurant Stocks to Buy Amid Industry Headwinds

Industry Overview - The Zacks Retail – Restaurants industry is facing challenges due to high wages, food cost inflation, and declining customer traffic, leading to cautious consumer spending on dining out [1][3] - Despite these challenges, rapid increases in menu prices and average check growth, along with expansion efforts, present positive prospects for the industry [1] Trends Impacting the Industry - Traffic woes persist, with a 2.3% decline in customer traffic for quick-service restaurant chains in the second quarter, primarily due to rising menu prices [3] - Digital innovation and partnerships with delivery channels are driving growth, with operators focusing on self-service kiosks and loyalty programs to enhance sales [4] - Off-premise sales, including delivery and takeout, are becoming key growth drivers, with many operators testing ghost kitchens and connected curbside services [5] Industry Performance - The Zacks Retail – Restaurants industry has underperformed the S&P 500 Composite, growing only 3.6% over the past year compared to the S&P 500's 25.3% increase [8] - The industry's forward 12-month P/E ratio is 23.96X, slightly above the S&P 500's 21.67X and the sector's 22.64X [9] Company Highlights - Texas Roadhouse (TXRH): The company is experiencing positive traffic trends, with a projected sales increase of 39.2% and earnings growth of 15.6% for 2024. Shares have surged 62.7% in the past year [10] - El Pollo Loco (LOCO): The company reported a 4.5% increase in system-wide comparable restaurant sales and improved store margins. Anticipated sales and earnings growth for 2024 is 2% and 12.7%, respectively, with shares gaining 44.7% in the past year [12] - Potbelly (PBPB): The company remains optimistic despite macroeconomic challenges, with a projected earnings increase of 33.3% for fiscal 2024. Strong customer satisfaction and successful digital initiatives are key growth drivers [14][16][18]