3 Restaurant Chains to Watch in 2014

Buffalo Wild Wings (NASDAQ: BWLD  ) , Chipotle Mexican Grill (NYSE: CMG  ) , and Panera Bread (NASDAQ: PNRA  )  are three restaurant chains for investors to consider in 2014. These restaurants were leaders of casual- and fast-casual restaurant chains in 2013.

These outlets were a good buy for consumers despite an economic recovery that was steady but slow. And investors willing to pay premium prices should consider these and other similar retail restaurants as the broader economy appears to be poised for stronger growth in 2014.

Buffalo Wild Wings brings the wings and other hot things
Buffalo Wild serves chicken wings and other zesty foods along with cold beer as diners watch sports on big-screen TVs. The made-to-order menu offers an array of foods topped with the chain's spicy sauces in addition to the hot wings. So it's a casual restaurant and sports bar wrapped into one.

The company is strong in a number of ways. In particular, Buffalo Wild has a consistent track record of growth with a five-year earnings growth rate of 22% and a five-year sales growth rate of 25%. By the end of the third quarter in 2013, the causal chain had 959 locations in 49 states. It has a market capitalization of $2.7 billion.

Buffalo Wild reported profit of $0.95 a share, up 67% from a year ago. Sales rose 28% to $315.8 million. Same-store sales -- which exclude sales at new joints --rose 4.8% at company-owned restaurants and 3.9% at franchised stores.

With the current share price of $147, some profit-taking could be on the menu. But going forward, the chain has a growth plan to open 1,700 new stores in North America over the next decade. Finally, Buffalo Wild recently announced plans to replace Coca-Cola beverages with PepsiCo. The strategy appears to be a play to add snack items under the PepsiCo brand (think Doritos) to spice up the menu and grow sales.

Chipotle Mexican Grill plans a pizza connection
Chipotle Mexican Grill reported continued strong sales in the third quarter. Total revenue for the quarter rose 18% to $826.9 million while operating income jumped 17% to $137.1 million. Chipotle's net income rose to $83.4 million, or $2.66 per share, up from $2.27 per share in the third quarter of 2012. 

Same-store sales also grew by 6.2%. The results are due in part to Chipotle's menu additions and marketing efforts. Sales were also well served by catering in 2013 -- accounting for close to 1% of the sales at restaurants where catering is available.

The caveat for investors is the spicy share price currently hovering at $532. But the chain plans to move beyond the Mexican food border as it pursues new concepts such as Asian cuisine with its ShopHouse locations and the most recently announced plan to partner with Pizzeria Locale.

The first Pizzeria Locale fast-casual location opened in May, and plans for two more locations in Denver are on the table. The menu features a variety of made-to-order pizzas that are fired up in a high-temperature oven that bakes the pizzas in less than two minutes. The restaurant also serves salads and other sides along with wines.

Management believes this is a long-term growth strategy, however. In the meantime, the company expects growth to continue to be driven by the Chipotle brand in the U.S.

Panera Bread's dough falls on lower guidance
While Panera Bread softened its fourth-quarter guidance in its latest quarterly report, the current share price of about $178 should be easier for some investors to swallow.

By the third quarter of 2013, the fast-casual chain reported net income of $43 million, or $1.48 per diluted share, compared to net income of $37 million, or $1.24 per diluted share for the same time period in 2012 -- a 19% year-over-year increase in diluted earnings per share. 

As mentioned, Panera also lowered its fourth-quarter guidance because of weak comparable sales. Management expects fourth-quarter and fiscal 2013 earnings per share of $1.91 to $1.97, down from $2.05 to $2.11 per share.

While the brand name is strong, investors should question how long it will be before the share price rises again. The current price around $176 is off the 52-week high of $194.77, so the decision for investors is whether this is the time to buy.

Final Foolish thoughts
The casual- and fast-casual sectors of retail restaurants will continue to see long-term growth as the overdue economic recovery grows stronger in the coming year. But in good times and in bad times, Americans like to eat. Moreover, they enjoy sampling from a wide variety of foods.

In light of consumers' big appetite, Buffalo Wild, Chipotle, and Panera will continue to see growth in the long run provided they continue to open new stores and add items to the menu to attract diners. Ultimately, investors in the retail-restaurant sector should choose locales where they like to eat and the buyback is profitable for share prices. 

Learn from the best
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

 


Read/Post Comments (5) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2014, at 5:12 PM, mummieeva wrote:

    I would not recommend Buffalo s at all. Here in Georgia they are closing down left and right.

  • Report this Comment On January 04, 2014, at 5:19 PM, tdozzy wrote:

    Not sure why Bwubs is such a hot commodity, they are usually the highest priced wings in town and no where near the best.

  • Report this Comment On January 05, 2014, at 12:30 PM, ocstef wrote:

    BWW is by far the worst restaurant we have ever sat in and left. Within 10 mins of waiting for acknowledgment on a super super slow night we left. I've been in the restaurant business for over 37+ years. I made millions with my restaurants and got out. I wouldn't invest a dime with BWW. Horrible, horrible choice.

  • Report this Comment On January 05, 2014, at 12:49 PM, Jip wrote:

    The reason why Buffalo Wild Wings is considered to be popular is because it appeals to the 20-30 year old diners.

    As for Chipotle, they DO NOT need to expand their line. Just like In 'N' Out, they need to focus on their basic menu and continue making quality product, JMHO.

  • Report this Comment On January 05, 2014, at 11:53 PM, USAFTV1365 wrote:

    Thee restaurant where I prefer to get my wings declared bankruptcy a few weeks ago, I don't care for BWLD wings, but I have 106k profit in BWLD. Just sayin................

Add your comment.

DocumentId: 2780825, ~/Articles/ArticleHandler.aspx, 7/25/2014 4:46:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement