On Wednesday, shares of Panera Bread Company (PNRA) soared after the company agreed to be acquired by private-equity investor JAB Holdings in a deal worth $7.5 billion. Assuming the acquisition closes as expected by the end of the third quarter of 2017, Panera will become a privately held company. And in the process, retail investors looking to capitalize on the fast-casual restaurant space will have lost a promising portfolio candidate.
Before you lose your appetite for this compelling segment, however, you should know that our market still offers several other great fast-casual stocks. Read on to see why I think Chipotle Mexican Grill (CMG -0.34%), Zoe's Kitchen (ZOES), and Buffalo Wild Wings (BWLD) each fit the bill.
Panera Bread recently agreed to be acquired. IMAGE SOURCE: PANERA BREAD CO.
Wrapping up a mouthwatering turnaround
Shares of Chipotle Mexican Grill are still down nearly 40% from their 2015 highs after multiple foodborne-illness scares had a devastating effect on its same-store sales. But Chipotle stock has also climbed almost 20% so far in 2017, as investors digest signs that the worst is over for the chain.
Last month, for example, a consumer loyalty survey from Market Force Information revealed that Chipotle has reclaimed its top spot in the Mexican food category, coming first in food quality, cleanliness, and curb appeal ahead of competitors including Qdoba, Taco Bueno, and Moe's Southwest Grill.
Shortly afterward, data-analysis company M Science caused Chipotle shares to climb further by predicting that the company will "easily" beat earnings expectations next quarter, citing the combination of its proprietary models and same-store-sales data sets from February and early March. Investors will need to wait until Chipotle's first-quarter report later this month before we know whether that's the case. But if Chipotle's business is improving as this research indicates, the stock should have much further to climb from here.
Zoe's Kitchen is down but not out
Next, Zoe's Kitchen is down in the dumps right now, with shares of the Mediterranean-style fast-casual restaurant chain touching their lowest level last month since the company's initial public offering in early 2014. For that, Zoe's investors can thank a weaker-than-expected fourth-quarter 2016 report in late February.
But that's not to say the quarter was bad. Revenue climbed 17.6%, to $62 million -- only slightly below analysts' estimates for $62.3 million -- including 0.7% comparable-restaurant sales growth. That marked the company's 28th consecutive quarter of positive comps growth in a time when the broader restaurant industry is struggling with declining sales. On the bottom line, that translated to an adjusted net loss of $1.4 million, or $0.07 per diluted share -- a penny per share below Wall Street's expectations -- primarily as the company invests heavily in building out its 207-restaurant base (it plans to open 38 to 40 new locations this year), as well as in-store infrastructure upgrades, website and app improvements, and continued menu innovation to keep diners coming back for more.
"We believe the strength of these initiatives will build on our brand promise to drive growth and shareholder value over the long term," insisted Zoe's Kitchen CEO Kevin Miles. "I'm thrilled to lead this highly energized and motivated team as we bring the benefits of the Mediterranean lifestyle to families across America."
In the end, I think Zoe's Kitchen stock should handily beat the market for patient investors willing to buy in these early stages and watch its growth story unfold.
Wings, beer, sports, and so much more
Finally, I know it might seem strange to nominate Buffalo Wild Wings as a top fast-casual stock, especially since its namesake restaurant concept is a decidedly casual, sit-down dining chain. But Buffalo Wild Wings also owns stakes in two young fast-casual restaurant chains, showing it isn't afraid to hedge its bets.
First, Buffalo Wild Wings owns a majority stake in R Taco, a fast-casual street taco chain that ended last year with 15 total restaurants -- eight company-owned and seven franchised. In 2017, Buffalo Wild Wings plans to open two new company-owned R Taco restaurants, as well as 12 to 15 new franchised R Taco locations.
Buffalo Wild Wings also owns a minority stake in PizzaRev, a Subway-style craft-your-own pizza chain that uses 900-degree stone ovens to cook its pies in less than three minutes. Buffalo Wild Wings claims just two company-owned PizzaRev locations as of this writing and expects the chain to continue to grow through its own franchising efforts in the near term.
But arguably more exciting for investors is Buffalo Wild Wings' stated goal to "build a portfolio of diversified brands for long-term sustained growth." More specifically, Buffalo Wild Wings wants to eventually grow to become a company of 3,000 restaurants worldwide, up from just 1,240 Buffalo Wild Wings, R Taco, and PizzaRev locations at the end of 2016. That growth will come from not only building out its restaurant base of existing brands, but also from selectively investing in other early-stage restaurant concepts going forward. Here again, for investors who buy now and stick around to watch those plans play out, the financial rewards should be even more satisfying than Buffalo Wild Wings' wares.
