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4 US Restaurant Stocks with Promising Growth Prospects

The US market offers a wealth of opportunities for growth investors.

You can search through various promising industries for companies with a solid growth track record.

Other than the much-touted artificial intelligence arena, there are sectors with businesses that are growing at a healthy clip.

One of these sectors is the restaurant space.

Well-run restaurant chains with a solid presence serving tantalising food keep customers coming back for more and can create lasting customer loyalty.

We feature four such restaurant chains with promising prospects that could deliver delicious returns to your investment portfolio.

Chipotle Mexican Grill (NYSE: CMG)

Chipotle Mexican Grill, or CMG, operates over 3,300 restaurants as of 30 September 2023 serving Mexican food.

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These restaurants are located in the US, Canada, the UK, France and Germany with the company hiring more than 110,000 employees.

For the first nine months of 2023 (9M 2023), CMG reported a 14% year on year rise in revenue to US$7.4 billion.

The increase in revenue stemmed from new restaurant openings as well as a 5% increase in comparable store sales led by higher transaction volumes and an increase in ticket size.

Operating profit jumped 38.2% year on year to US$1.2 billion while net profit surged 40.2% year on year to US$946.7 million.

The Mexican food operator saw its free cash flow nearly double year on year in 9M 2023 from US$586 million to US$1.1 billion.

There were other good statistics to share – restaurant-level operating margin increased from 25.3% to 26.3% with digital sales taking up slightly more than a third of total food and beverage (F&B) revenue.

The company opened 62 new restaurants during the third quarter (3Q 2023) and is guiding for between 285 to 315 new openings in 2024.

CMG recently partnered with Hyphen, a food service platform, to use intelligent automation to build bowls and salads while employees operate the top makeline to make burritos, tacos, and quesadillas.

Darden Restaurants (NYSE: DRI)

Darden is a restaurant chain with a portfolio of brands such as Olive Garden, LongHorn Steakhouse, Yard House, and Bahama Breeze, among others.

The company has demonstrated steady growth over the years with revenue increasing from US$7.2 billion in fiscal 2020 (fiscal year end: 31 May) to US$10.5 billion in fiscal 2022 (FY2022).

Net profit climbed from US$629.3 million to US$981.9 million over the same period.

Darden also generated positive free cash flow across all three fiscal years.

Back in May, the company acquired Ruth’s Hospitality Group, which owns Ruth’s Chris Steak House, for US$715 million.

Ruth’s Chris Steak House is a fine dining restaurant with 154 restaurants in the US generating systemwide sales of US$860 million.

For its fiscal 2023 first quarter (1Q FY2023), Darden has incorporated the sales from this acquisition into its financials.

The company saw its revenue rise 11.6% year on year to US$2.7 billion, supported by a same-store sales increase of 5%.

Operating profit improved by 3.6% year on year to S$252.9 million with net profit inching up 0.8% year on year to US$194.5 million.

Darden also generated a positive free cash flow of US$113.2 million for 1Q FY2023.

Texas Roadhouse (NASDAQ: TXRH) 

Texas Roadhouse is a restaurant chain in the casual dining segment with over 720 restaurants in 49 states and 10 foreign countries.

From 2020 to 2022, the company saw its revenue increase from US$2.4 billion to US$4 billion.

Net profit jumped from US$31.2 million to US$269.8 million over the same period.

For 9M 2023, total revenue jumped by 15.4% year on year to US$3.5 billion while operating profit improved by 7.5% year on year to US$270.2 million.

Net profit climbed 10.7% year on year to US$232.4 million.

A total of nine company-owned and four franchised restaurants were opened in 3Q 2023, including Texas Roadhouse’s first Jaggers franchise restaurant.

The business also generated a healthy positive free cash flow of US$146.8 million in 9M 2023.

A quarterly dividend of US$0.55 per share was declared and will be paid on 26 December.

Yum! Brands (NYSE: YUM)

Yum! Brands owns more than 57,000 restaurants in more than 155 countries and territories under famous brands such as KFC, Taco Bell, Pizza Hut, and the Habit Burger Grill.

Sales rose from US$5.7 billion in 2020 to US$6.8 billion in 2022 with net profit increasing from US$904 million to US$1.3 billion across the same period.

The business also generated consistent free cash flow averaging US$1.26 billion across all three years.

Dividends also rose from US$1.88 per share in 2020 to US$2.28 in 2022.

For 9M 2023, Yum! Brands pulled off a commendable financial performance.

Total revenue increased by 5% year on year to US$5 billion with net income climbing 19% year on year to US$1.1 billion.

The restaurant chain also generated a positive free cash flow of US$976 million for 9M 2023.

3Q 2023 saw the total restaurant count increase by 6% or 1,130 new openings, a record for the third quarter.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

The post 4 US Restaurant Stocks with Promising Growth Prospects appeared first on The Smart Investor.