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What 3 Restaurants Had the Best First Quarter?

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. 

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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8/28/2015 4:00 PM
BWLD $194.06 Down -1.58 -0.81%
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RRGB $81.10 Up +0.76 +0.95%
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