Despite the broad under-performance of the restaurant sector during the first quarter, a few companies stood out as being top-performers. These select few include Red Robin Gourmet Burgers (NASDAQ:RRGB), Buffalo Wild Wings (NASDAQ:BWLD), and Chipotle Mexican Grill (NYSE: CMG), but does this mean that all are good investments?
A quick glance at the sector
In 2013, the restaurant industry as a whole saw sales rise 3.1% to $440.9 billion in the U.S. However, this growth occurred while same-store sales were flat, as the core growth driver for restaurants was a 2.6% increase in menu prices.
With that said, the restaurant industry as a whole remains relatively stagnant yet broken down into three segments. There is fast food, which has seen the greatest declines, casual dining, which is essentially flat, and then quick casual, which has seen the greatest growth. These are three segments to keep in mind.
Nothing special but impressive nonetheless
For example, Red Robin, which falls under the category of casual, saw its first- quarter same-store sales rise a very impressive 5.4%. This is a company that focuses on burgers, wraps, and other sandwiches, which is nothing special in gaining an edge over other restaurants.
Moreover, and what may be most impressive, is that Red Robin achieved this growth, total revenue growth of 11.1%, without discounting or sacrificing margins. In fact, the company's operating margin actually increased 90 basis points to 22.4% from 21.5% in 2013. Combined, this shows that Red Robin is operating on a high level, expanding responsibly, and driving traffic in its stores, making it a big win in a rough quarter.
A transitional difference
While Red Robin lacks an operating edge in its menu options, Buffalo Wild Wings is a company that's created a niche with wings, beer, and sports. In the first quarter of 2014, when weather was at its worst, this combination worked well with consumers, as same-store sales at company-owned stores rose 6.6% and at franchise locations rose 5%. If you incorporate an aggressive expansion program, Buffalo Wild Wings saw its revenue soar nearly 21%.
The company also changed its focus from selling wings by the number to portion, meaning it could sell larger wings at a lower cost in a quantity-based market. As a result of this and a failed wing promotion by McD's, the company saw a whopping 440 basis point decline in food costs that resulted in a 72.9% increase in net earnings. Needless to say, it was a fantastic quarter for the restaurant.
The best growth of the best
Chipotle naturally has an edge over the two noted industry peers, operating in a fast-casual space that grows rapidly. Yet, its 13.4% growth in comparable sales, equating to total revenue growth of 24.4%, was unmatched in the quarter. Granted, the company's 25.9% operating margin did represent a 40 basis point decline over last year, but given the widely known increase in guacamole costs and other Mexican food favorites, this modest decline was actually impressive.
Albeit, Chipotle has been able to manage high costs and drive profits higher because it continues to drive more consumers in existing stores, as seen in comparable sales growth. In fact, Chipotle has the highest revenue per square foot in the industry, at more than $840, which is more than double that of many fast-food chains. For this reason, and its continued execution despite uncontrollable headwinds, it too falls in the category of best-in-class for the first quarter.
It seems that Buffalo Wild Wings had the best quarter of the three. With Buffalo Wild Wings' shares trading essentially trading flat in 2014, it most certainly looks poised for gains and possibly many more quarters of solid growth. As always Foolish investors should do their own research before making any investment decisions.
Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!
Brian Nichols owns shares of Chipotle Mexican Grill. The Motley Fool recommends Buffalo Wild Wings and Chipotle Mexican Grill. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.