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The U.S. restaurant sector posted four straight quarters of same-store-sales growth through the first quarter of 2018, according to industry analytics group TDn2K. That hasn't happened since 2015, and it indicates that the right restaurant stocks could still have room to run.
Today, a trio of our Motley Fool contributors will highlight three restaurant stocks that deserve your attention -- Yum China (NYSE: YUMC), Wingstop (NASDAQ: WING), and McDonald's (NYSE: MCD).
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Yum's Chinese counterpart
Leo Sun (Yum China): Yum! Brands (NYSE: YUM) spun off its Chinese unit as Yum China in 2016. Yum China was initially considered a riskier play than Yum Brands, because of its decelerating growth in China and food safety issues. Concerns about China's slowing economy and trade tensions with the U.S. exacerbated the pain.
However, Yum China continued to aggressively expand across China with franchised stores, and it posted impressive growth in recent quarters. Its total comparable store sales rose 4% last quarter, as KFC and Pizza Hut's comps rose 5% and 1%, respectively. Analysts had expected total comps to rise just 2%.
Yum China's restaurant margin also improved 60 basis points annually to 18.5%, which was impressive since it faced higher poultry costs and wages. It opened 237 restaurants during the quarter to hit a total store count of 8,653 -- which was still well below its long-term goal of 20,000 stores.
Yum China is also renovating its existing locations, installing KFC and Pizza Hut stores in gas stations, and testing out a new standalone coffee store, Coffii & Joy, to profit from the growth of China's coffee market.
Yum China didn't provide any exact guidance for the full year, but analysts expect its revenue and earnings to rise 7% and 13%, respectively. The stock isn't necessarily a bargain at 24 times forward earnings, but it could be a long-term winner if its aggressive expansion and renovation plans pay off.
No longer piping hot, but still just as tasty
Jamal Carnette, CFA (Wingstop): After significantly outperforming the S&P last year with an 81% return, Wingstop has taken a breather this year and increased only 17% year to date. The biggest reason for the stock deceleration was a fourth-quarter earnings report in which the restaurant missed on top- and bottom-line analyst estimates.
Despite the earnings miss, the company is still growing rapidly. Full-year revenue increased 15% over the prior year. Same-store-sales growth -- a key metric in the restaurant industry that compares sales growth in restaurants open for at least one year -- increased 6.5%, versus 2.6% in fiscal 2017, pointing to more demand as brand awareness increases.