3 Restaurant Stocks With the Best Comparable-Store Sales Growth
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As restaurant investors probably already know, comparable sales are perhaps the single most important metric in determining a company's success. The figure, which strips out the effect of sales at stores that have been opened or closed in the last year, probably provides the best snapshot of a brand's current popularity.
Similarly to other financial metrics, comparable sales have their caveats. For instance, companies can raise prices to boost comparable sales over a given year, though doing so every year is not a viable strategy. That's why traffic, or the number of customer visits, is often the most closely watched component of comparable, or same-store, sales. Even so, comparable sales tend to offer the best representation of a restaurant chain's current trajectory.
On that note, let's take a look at the companies with the fastest comparable-sales growth, as reported thus far, through 2016.
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1.Domino's Pizza(NYSE: DPZ)
While much of the fast-food industry has complained of a restaurant recession in recent months as traffic slows, Domino's sales are flying higher. In 2015, comparable sales at the nation's biggest pizza delivery chain jumped 12%, and that figure improved to 13% in the company's most recent quarter. Through the first three quarters of 2016, it's up 9.7%.
A combination of easier ordering through the web, a pizza tracker to let customers know what's happening with their order, and an effort to improve quality, along with a marketing campaign to tell customers how it's doing it, has helped drive consistent sales growth. A rapid international expansion strategy has also helped make the stock one of the best-performing as it has returned nearly 3,000% since the market bottom.
RivalPapa John'shas also performed well as pizza delivery seems to be benefiting from complementary trends like video-streaming and e-commerce, which have arguably hurt the rest of the restaurant industry.
2. Dave & Buster's(NASDAQ: PLAY)
Like Domino's, Dave & Buster's, with the second-best comparable-sales growth, has a different formula from the average restaurant chain. Dave & Buster's is both a restaurant and an amusement chain, with arcade games, billiards, bowling, and more. That model has helped drive consistent traffic growth at a time when other restaurants are struggling. In 2015, the company's comps increased 8.9%, and were up 5.9% in the most recent quarter. Through the first three quarters of 2016, they improved 3.5%. At a time when many mall-based retailers are closing stores, Dave & Buster's has proven to be a worthy traffic driver for such developments as bowling or an arcade can't be outsourced on the web the way shopping has been.
As a result, Dave & Buster's shares have also thrived since its 2014 IPO, more than tripling in that brief period. Considering the advantage of its business model, the company looks like it's on track for more of the same.
3. Del Taco(NASDAQ: TACO)
Unlike the other names on this list, Del Taco is more like your average fast-food restaurant, but the company has found strong comparable-sales growth by introducing a new trademark Del Taco menu item and through its Fresh Combined Solutions.
In the second half of 2016, comparable sales were up more than 6.1%, and for all of 2016 they increased 4.7%. In 2015, they jumped 6.3%. The company launched the Del Taco crunchy taco in June, and the product has since broken company records for new-product introductions, driving sales growth in the second half of the year. As part of its high-low strategy, in which the company offers menu items for both high and low budgets, it recently began offering platos for $6.49, which consist of meals with sides like chips and salsa, and rice and beans. Management is optimistic that platos will continue to drive growth as the company hopes to open 2,000 restaurants nationwide. As long as comparable sales keep growing, that goal should remain firmly in sight.
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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of Papa John's International. The Motley Fool is short Domino's Pizza and has the following options: long June 2017 $140 puts on Domino's Pizza. The Motley Fool recommends Dave and Buster's Entertainment. The Motley Fool has a disclosure policy.