There continues to be a lot of strength among restaurant companies and while each specific situation is different, lower gas prices and increased spending are helping the industry.
The Highlights Among Restaurant Stocks
A solid holding in this market remains Cracker Barrel Old Country Store, Inc. (CBRL). The position has done incredibly well since last October and the company recently beat Wall Street consensus, while raising this year’s guidance.
Business conditions really improved in the company’s most recent quarter (its second fiscal quarter of 2015, ended January 31, 2015). Total sales grew 8.2% comparatively to $756 million. Comparable restaurant sales grew 7.9%, with a 3.2% gain in the average check and a similar gain in comparable retail sales. Earnings for the most recent period grew a whopping 27% to $47.2 million, with diluted earnings per share improving 26%.
The company’s share price has been in consolidation since the beginning of the year after a major run-up to $140.00 a share from $100.00. It just broke out of this price consolidation on its solid financial report, and the position is still yielding just over three percent.
Recently, we looked at Fiesta Restaurant Group, Inc. (FRGI), which has also been pushing new all-time highs. (See “Fiesta Restaurant Stock Reports Double-Digit Growth and More Momentum.”) This firm runs the Pollo Tropical and Taco Cabana chains, and while not cheaply priced on the stock market, the company is growing by the double-digits.
While not directly in the same line of business, Starbucks Corporation (SBUX) has been soaring lately. The company’s share price was approximately $80.00 in January; now it’s getting close to $100.00, after announcing an 82% surge in comparable net earnings.
The good financial results and share price action among many of these stocks is useful market intelligence. Expectations for many of these businesses have been edging higher and despite being fully priced, they are earning it.
Strength in restaurants, both operationally and on the stock market, is a positive development. Many of these businesses have been able to raise their prices while not affecting sales, and it’s helping their bottom line tremendously.
Food costs are expected to rise further this year, but as has been demonstrated in recent quarters, this is being passed onto consumers.
I still think speculators should keep Zoe’s Kitchen, Inc. (ZOES) on their radar. This relatively new company has good potential going forward.
Overall, there is good trading action within the whole sector.
Why Starbucks May Be Worth a Second Look
Starbucks tends to trade with bursts of capital appreciation (after good earnings), followed by meaningful consolidation. As amazing at it seems, there is still good growth potential for this company and financial expectations remain in the double-digits.
In its most recent quarter (ended December 28, 2014), the company’s total sales grew 13% to $4.8 billion. One in seven Americans bought a Starbucks gift card from the company, according to management.
What this stock needs is another share split, of which the last one was in 2005.
This fiscal year, Starbucks expects top-line growth to be between 16% and 18% with global comparable store sales growth in the mid-single-digits.
Still very much a growth story, this stock would be attractive on a material price retrenchment.