Trendy Restaurants Should Thrive As Economy Improves
By MARILYN MUCH, INVESTOR’S BUSINESS DAILY
Trendy restaurants that survived or thrived during belt-tightening years should cash in as consumers are willing and able to eat out more often.
Quality food at attractive prices has been a winning menu for Chipotle Mexican Grill (CMG), Buffalo Wild Wings (BWLD) and Panera Bread (PNRA). They all should benefit as job and economic growth gradually improve. Rising gas prices are a head wind, though.
Commodity costs for corn and wheat are down from last year’s highs, but remain high for meat such as pork and chicken wings.
Chipotle’s sales and profits have climbed at double-digit rates the past 12 quarters, despite rising commodity prices for meat ingredients such as pork and chicken wings.
“The prospect for better consumer spending feeds into better sales … combined with the outlook for lower commodity costs both for later this year and into next year, will position the group for even better earnings trends,” said Morgan Keegan analyst Robert Derrington.
Shares of all three chains are trading at or near all-time highs.
Fast-casual chains should continue to be the fastest-growing sector in sales and expansion.
Sales are likely to rise 5% to 8% this year excluding menu price hikes, forecasts Darren Tristano, executive vice president at industry consultant Technomic.
They offer nearly the same quality as casual restaurants, but for only a couple dollars more per person than fast food, says Miller Tabak analyst Stephen Anderson.
Take fast-casual burrito chain Chipotle. Sales and profits have climbed at double-digit rates the past 12 quarters. Q4 same-store sales jumped 11.1% — highest in the industry, says Anderson.
Profit growth should accelerate to 31% in Q1 vs. 23% in Q4, according to Thomson Reuters analysts.
“Things definitely seem to be looking up,” said spokesman Chris Arnold.
Costs To ‘Level Off’
Chipotle narrowly missed profit forecasts for the past two quarters due to rising food costs, but Arnold expects those pressures to “level off” sometime this year.
The company says it has no plans for a systemwide menu price increase, though it will raise prices in the Pacific region.
Chipotle opened its first Asian-theme eatery, ShopHouse Southeast Asian Kitchen, in Washington, D.C., last September. Arnold says it has been “well-received.”
Bakery-cafe Panera has enjoyed double-digit earnings and sales growth for the last eight quarters. Analysts see profit growth accelerating to 23% in Q1 vs. 17% in Q4.
Improved quality of items such as soup, sandwiches and salads has helped fuel long-term growth, Derrington says. So have catering sales and its MyPanera loyalty program, which had 9.5 million members as of Q4.
After struggling for years, casual-sit chains overall finally began to see same-store sales turning positive about this time last year, says Tristano. He expects the uptick to continue this year.