With nearly 78% of the U.S. population having received at least one dose of COVID-19 vaccine, and with consumer discretionary spending increasing, the near-term prospects for the restaurant industry look promising. So, we think it could be wise to bet on fundamentally sound restaurant stocks Starbucks (SBUX), RCI Hospitality (RICK), Chuy Holdings (CHUY), and Good Times Restaurant (GTIM). They are each ‘Strong Buy’ or ‘Buy’ rated in our proprietary POWR Ratings system. Let’s discuss these names.
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The restaurant industry faced several operational challenges due to social distancing requirements amid the COVID-19 pandemic, and emerging new variants of the deadly virus continue to impact the industry. However, many restaurants have stayed afloat by focusing on off-premises services, such as deliveries, carry-outs, and drive-throughs.
With roughly 77.7% of the U.S. population above 12 years of age having received at least one dose of a COVID-19 vaccine, and with the gradual easing of social distancing norms, the restaurant industry is expected to witness a solid recovery in the coming months. According to a National Restaurant Association report, food and beverage sales in the restaurant and foodservice industry are expected to reach $789 billion in 2021, up 19.7% from 2020.
Given this backdrop, we think quality restaurant stocks Starbucks Corporation (SBUX), RCI Hospitality Holdings Inc. (RICK), Chuy’s Holdings Inc. (TRANSFER), and Good Times Restaurants Inc. (GTIM) look like solid bets. They have an overall rating of A (Strong Buy) or B (Buy) in our proprietary POWR Ratings system.
Starbucks Corporation (SBUX)
SBUX in Seattle, Wash., operates 33,000 stores as a premier roaster, marketer, and retailer of specialty coffee worldwide. The company operates in three segments: Americas; International; and Channel Development. In addition, it offers coffee and tea beverages, roasted whole bean and ground coffees, single-serve, and ready-to-drink beverages, iced tea, and various food products.
On July 27, 2021, SBUX announced that it had agreed to sell its 50% ownership share in Starbucks Coffee Korea Co., Ltd. to joint venture partner E-Mart Inc. and an affiliate of GIC Private Limited. Michael Conway, group president, International and Channel Development, said, “Starbucks is confident in E-Mart and GIC’s ability to continue to elevate the Starbucks Experience for customers and identify unique opportunities to reach more customers throughout this important market.”
SBUX’s net revenue increased 77.6% year-over-year to $7.50 billion in its fiscal third quarter, ended June 27, 2021, while its global comparable store sales increased 73%. The company’s non-GAAP operating income came in at $1.54 billion, versus a $530.20 million loss in the prior-year quarter. Also, its non-GAAP EPS came in at $1.01 compared to a $0.46 loss in the year-ago period.
Analysts expect SBUX’s EPS and revenue for fiscal 2021 to be $3.23 and $29.12 billion, respectively, representing a 176.1% and 23.8% respective increase year-over-year. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 30.3% in price to close yesterday’s trading session at $114.92.
SBUX’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
SBUX has a B grade for Growth, Momentum, Sentiment, and Quality. Within the A-rated Restaurants industry, it is ranked #3 of 47 stocks. Click here to see the additional POWR ratings for SBUX (Value and Stability).
RCI Hospitality Holdings Inc. (RICK)
Houston, Tex.-based RICK, through its subsidiaries, engages in hospitality and related businesses in the United States. With more than 40 units, it is the country’s leading company in gentlemen’s clubs and sports bars/restaurants. It operates restaurants and sports bars under the Bombshells Restaurant & Bar brand, and dance clubs under the Studio 80 brand.
On October 19, 2021, RICK announced the acquisition of 11 adult nightclubs in six states, and six related real estate properties. Eric Langan, RICK’s President and CEO, said, “The new clubs increase our current unit count by 23%, to 58 locations. They expand our footprint with five in Denver, Colorado; two near St. Louis, Mo.; and one each in Indianapolis, Ind., Louisville, Ky., Raleigh, N.C. and Portland, Maine.”
RICK’s net revenue increased 294% year-over-year to $57.90 million for its e fiscal third quarter, ended June 30, 2021. The company’s adjusted EBITDA was $20.40 million compared to a $1.90 million loss in the prior-year quarter. In comparison, its non-GAAP net income came in at $12.24 million compared to a $6.78 million loss in the year-ago period. Also, its non-GAAP EPS was $1.36, versus a loss of $0.74 in the year-ago period. For its fiscal year 2021, analysts expect its revenue and EPS to increase 47.9% and 523.5%, respectively, year-over-year to $195.75 million and $3.18. Also, it has surpassed the consensus EPS estimates for the trailing four quarters. The stock has gained 181.5% in price over the past year to close yesterday’s trading session at $69.23.
It’s no surprise that RICK has an overall A rating, which translates to a Strong Buy in our POWR Rating system. The stock also has a B grade for Quality, Growth, Momentum, and Sentiment.
In the Restaurants industry, it is ranked #2. To see additional POWR ratings of Value and Stability for RICK, click here
Chuy’s Holdings Inc. (TRANSFER)
CHUY’s, through its subsidiaries, owns and operates full-service restaurants that offer a menu of authentic, high-quality Mexican food across 17 states. The Austin, Tex.-based company operates 95 restaurants. Each of its restaurants provides a variety of homemade sauces, including its signature Hatch Green Chile, Boom-Boom, and Creamy Jalapeno sauces.
On August 5, 2021, CHUY’s President and CEO, Steve Hislop, said, “With positive sales trajectory and improved operating efficiencies, we are optimistic about the health of our business, and we will remain operationally and hospitality-focused as we look toward the remainder of the year.”
CHUY’s revenues increased 64.7% year-over-year to $108.20 million in its second fiscal quarter, ended June 27, 2021. The company’s non-GAAP adjusted net income increased 215% year-over-year to $12.60 million. Also, its adjusted EPS rose 169.6% year-over-year to $0.62, while its restaurant-level operating profit increased 87% year-over-year to $27.60 million.
The company’s EPS and revenue are expected to be $1.76 and $399 million, respectively, for its fiscal year 2021, representing an increase of 109.5% and 24.3% year-over-year. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 29.5% in price over the past year to close yesterday’s trading session at $29.63.
CHUY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth, and a B grade for Value, Momentum, and Quality.
In the Restaurants industry, it is ranked #11. To see additional POWR Ratings for Stability and Sentiment for CHUY, click here.
Good Times Restaurants Inc. (GTIM)
GTIM operates and franchises Good Times Burgers & Frozen Custard, an upscale quick-service drive-through dining restaurant. It also owns, operates, franchises, and licenses Bad Daddy’s Burger Bar, a full-service upscale casual dining restaurant. GTIM is headquartered in Golden, Colo.
On August 10, 2021, Ryan M. Zink, the company’s President and CEO, said, “Our strong same store sales at both brands, as well as attaining 2019 sales levels beginning in July at Bad Daddy’s, are the results of the commitment and dedication of our restaurant leaders and team members who embrace our mission to serve our guests and operate great restaurants despite the pressures and challenges arising from a difficult hiring environment.”
For its fiscal third quarter, ended June 29, 2021, GTIM’s revenues came in at $339.9 million, up 39.4% year-over-year. Its adjusted EPS increased 5,100% year-over-year to $1.04. On October 13, 2021, GTIM announced that sales during the fourth quarter of 2021, by restaurants that were open for the whole fourth quarter in both years, increased by 8.7% at Good Times and by 5.7% at Bad Daddy’s restaurants, as compared to the fourth quarter of 2019. Over the past year, the stock has gained 210.4% in price to close yesterday’s trading session at $4.75.
It’s no surprise that GTIM has an overall rating of A, which equates to a Strong Buy in our POWR Rating system. GTIM also has an A grade for Value.
In the Restaurants industry, GTIM is ranked #1. Beyond what we stated above, we also have given GTIM grades for Growth, Momentum, Sentiment, and Quality. Get all the GTIM ratings here.
SBUX shares were trading at $113.95 per share on Wednesday morning, down $0.97 (-0.84%). Year-to-date, SBUX has gained 7.81%, versus a 23.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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