Cinco de Mayo may be a long way away, but that's not stopping investors in Mexican food and beer from celebrating. Lately a lot of companies that sell Mexican-style cuisine and drinks are seeing a surge in sales and profits. Typically you'll see each individual company pat itself on the back, claiming that its success is owed to its individual marketing strategy. However, when you see similar success happening repeatedly across an industry, you have to chalk up the success to more than just marketing. Instead, a cultural trend is brewing: Americans are wolfing down Mexican like never before.
Think outside the bun
Start with Taco Bell, owned by Yum! Brands (NYSE: YUM ) . Yum! Brands says its KFC, Pizza Hut, and Taco Bell brands are "the global leaders of the chicken, pizza and Mexican-style food categories." On Oct. 8, Yum! Brands reported that only its Taco Bell brand showed an increase in same-store sales, with a 2% increase for Taco Bell vs. a 4% decline for KFC and a 1% decline for Pizza Hut. It was the seventh consecutive quarter of positive same-store sales growth for Taco Bell. Yum! Brands expects "...solid profit growth, driven by continued same-store sales strength at Taco Bell." Sounds like its fire sauce will keep on flowing.
Moving up the fast-food ladder
Chipotle Mexican Grill (NYSE: CMG ) , like Taco Bell, serves Mexican fast-food. However, Chipotle considers itself a step above the "typical fast food experience." Chipotle Mexican Grill delivered results last week that were hotter than its jalapeno salsa. Same-store sales increased a spicy 6.2% which helped increase overall revenue by 18% and push EPS up 17.2%. Chipotle expects strong same-store sales to continue throughout this year and next year. Get there early to avoid the crowd.
Chuy's Holdings (NASDAQ: CHUY ) is a small (45 restaurants) but rapidly-growing chain of full service Mexican restaurants. In its most recent report, Chuy's Holdings had a 2.1% increase in same-store sales, a 22.7% rise in overall revenue, and net income nearly doubled from $1.7 million to $3.2 million. It offers further guidance for more same-store sales growth for the remainder of the year. This is at a time when chains such as Ruby Tuesday are suffering (same-store sales down 11%) and describe the full service restaurant industry as challenging. Maybe Ruby Tuesday's should add Mexican dishes to its menu.
Whether it's full service, takeout, fast-food, or "fancy" fast-food, it seems Americans can't get enough of Mexican food lately.
Wash it all down with a cold Mexican beer
Constellation Brands (NYSE: STZ ) makes and sells beer, wine, and hard liquor. Constellation Brands delivered fantastic results with overall sales and net income up significantly. While much of its overall growth was due to its acquisition, take a guess what brands in particular stood out? Yup, you guessed it: the Mexican beers. Its Corona sales showed 4%-5% growth and Modelo Especial showed a whopping 17% growth for the single quarter. As Americans eat more chips & salsa, tacos, and burritos, they need something to wash it down. Cheers!
Americans are developing a greater palate for anything Mexican. Watch for this trend to continue. Prepare for more earnings surprises among those companies that recognize this trend and adjust their menus or product offerings accordingly. As for Yum! Brands, Chipotle Mexican Grill, Chuy's, and Constellation Brands, pay close attention to management comments in earnings releases and conference calls looking for hints of a continued Mexican trend.