What 3 Restaurants Had the Best First Quarter?

The first-quarter earnings season has come to an end; it was particularly rough for restaurants due to a harsh winter, but three in particular excelled and might continue to do so.

Jun 8, 2014 at 10:00AM

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.

Final thoughts 
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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers