3 Stocks to Buy on Growing Restaurant Sales Amid Price Challenges

U.S. restaurant sales jumped 1.2% in April, totaling $99.4 billion, following a 3% increase in March, indicating continued consumer spending despite price challenges; this suggests a resilient economy and has led Zacks to highlight BJ's Restaurants (BJRI), Wingstop (WING), and CAVA Group (CAVA) as buy-rated stocks with strong expected earnings growth of 23.8%, 6.3%, and 38.1% respectively, further supported by easing trade tensions and cooling inflation, potentially paving the way for Federal Reserve rate cuts.

Analysis

U.S. restaurant sales demonstrated robust growth, increasing 1.2% month-over-month in April to $99.4 billion, following a strong 3% rise in March. This consistent spending at restaurants and bars, viewed by economists as a key barometer of household financial health, suggests underlying economic resilience despite prevailing price challenges. The positive trend in the restaurant sector is further supported by a modest 0.1% rise in overall retail sales in April and, more significantly, by signs of cooling inflation. The Consumer Price Index (CPI) rose only 0.2% in April, with the year-over-year increase slowing to 2.3%, its smallest gain since February 2021, moving closer to the Federal Reserve's 2% target. Easing trade tensions, marked by a temporary pause on new tariffs and ongoing negotiations, coupled with investor optimism for potential Federal Reserve rate cuts by September, create a favorable outlook for the restaurant industry. Against this backdrop, BJ's Restaurants (BJRI) is highlighted with an expected earnings growth rate of 23.8% and a 9% improvement in its consensus earnings estimate over the past 60 days. Wingstop (WING) projects a 6.3% earnings growth, with its consensus estimate also improving by 6.3%. CAVA Group (CAVA) shows the highest expected earnings growth at 38.1%, accompanied by a 5.5% upward revision in its consensus earnings estimate. All three companies currently hold a Zacks Rank #2 (Buy), indicating positive analyst sentiment.

Key Decisions for Investors

• Consider allocating capital towards restaurant equities, particularly those with strong earnings growth outlooks and positive analyst revisions such as BJRI, WING, and CAVA, given the supportive macroeconomic trends of resilient consumer spending and moderating inflation.
• Monitor upcoming inflation reports and Federal Reserve communications closely, as continued disinflation could reinforce expectations for monetary policy easing, further benefiting consumer discretionary sectors like restaurants.
• Keep abreast of developments in international trade negotiations, as a definitive resolution of tariff uncertainties could provide an additional catalyst for market sentiment and consumer confidence, positively impacting restaurant stocks.