3 Restaurant Stocks Delivering Strong Results

It's been a tough year for the restaurant industry. Most companies have struggled to put food on the table amid pandemic-led shutdowns and restrictions. There have however been a handful of standout performers that have managed to not just survive but produce some impressive performances despite the challenging backdrop.

Here we take a look at a few of the restaurants that have risen to the top—and are likely to deliver more strong results in 2021.

What is Driving Chipotle's Recent Success?

Chipotle Mexican Grill (NYSE:CMG) stock has sizzled this year climbing nearly 50%. Not only did the popular quick-casual food chain beat revenue expectations for the eighth consecutive quarter in Q3, but it managed to grow its top line year-over-year. This is no small feat given how tough it has been for restaurants to generate demand from a largely cautious consumer base.

Although earnings fell due to rising safety, labor, and food costs, Chipotle's recent performance has reinforced the power of its loyalists. Like other chains that have performed well in the current environment, Chipotle's digital platform deserves much of the credit. The Mexican food chain revamped its online ordering to make it more efficient, provided greater flexibility with order customization, and enhanced payment options to adjust to changing customer needs.

Customers have also embraced the new drive thru 'Chipotlanes' which allow them to order through the Chipotle app or online and pick up without stepping foot outside their cars. More than half of the 44 restaurants opened last quarter had the popular Chipotlane. Given the positive impact of the platform on sales and margins, Chipotle plans to incorporate Chipotlanes into 70% of new restaurant openings next year.

Expanded partnerships with third-party delivery services have also helped ensure that burrito bowls and chorizo get into the hands of its hungry followers in the U.S., UK., Canada, France, and Germany.

Chipotle is on pace to deliver its fifth straight year of revenue growth in 2020. And although profits are expected to decline this year, 2021 is setting up to be a caliente year of potential record earnings.

Is Texas Roadhouse on the Road to Recovery?

Texas Roadhouse (NASDAQ:TXRH) posted a significant earnings beat last quarter as EPS of $0.42 was more than twice the consensus expectation. While earnings were down 20% compared to last year due to higher wage and other pandemic-related expenses, the casual dining restaurant chain benefitted from the easing of capacity restrictions.

As dining rooms have reopened, people have been more willing to return to the 600-plus Texas Roadhouse and Bubba 33 locations across the U.S and in ten international markets. Average weekly sales increased sequentially in August, September, and October are on the road to returning to historical levels.

Meanwhile, Texas Roadhouse is capitalizing on improving customer traffic by moving forward with plans to open at least 20 new locations this year after pausing construction this Spring.

Texas Roadhouse has also found success in its To-Go business which accounted for 23% of sales in Q3. Convenient (and safe) curbside and drive-up pickup service have helped the company retain customers and generate repeat orders.

Management is also thinking outside the to-go box to find new growth avenues. The Texas Roadhouse Butcher Shop initiative geared towards the online purchase and delivery of hand-cut steaks holds the potential to generate some meaningful complementary growth. The program is slated to go live this month amid rising consumer interest in stocking up on meats and other foods ahead of the uncertain winter season.

Investors can expect the favorable sales trends to carry over into 2021 when upwards of 25 new Texas Roadhouse locations are expected to be opened.

Is Noodles & Company a Good Growth Stock?

Last but not least, Noodles & Company (NASDAQ:NDLS) has been another standout in the restaurant space. The small cap operator of fast-casual pasta, sandwich, soup, and salad destinations has topped bottom-line expectations in each of the last seven quarters and appears to be on the path back to profitability. After a tough past couple of quarters in terms of profitability, analysts are forecasting that Noodles & Company will generate EPS of $0.27 next fiscal year.

As you would expect, the recent outperformance stems from the company's digital platform enhancements which have made online ordering, pickup, and delivery a breeze for price-sensitive consumers. Its value-priced family meals have been popular with parents looking for an affordable way to feed the family after a long day at the home office.

Given the favorable trends in the business, Noodles may even exceed its previous EPS high in 2021. The company's 456 restaurants across 30 U.S. states are particularly popular with the lunch crowd although they also serve dinner. While this may sound an alarm due to the prevalence of remote workforces these days, a closer look at Noodles & Company's business model reveals why it has performed relatively well in the pandemic environment.

Prior to COVID, Noodles & Company generated almost 60% of sales from off-premise orders. Its value proposition appeals to more than just convenience minded professionals. Noodles extensive menu of globally inspired noodle dishes and mac and cheese bowls cater to a wide demographic from kids to adults and from healthy eaters to less than healthy carb loaders.

The business had some strong momentum heading into 2020 recording seven straight quarters of same-store sales growth and steadily expanding margins. Look for these trends to continue heading into 2021. Noodles & Company's differentiated menu and target market which includes Millennials, Gen Zers, and young families should deliver solid growth over the next several years.