3 chains weathering the restaurant recession


The U.S. restaurant industry just wrapped up another month of declines. According to TDn2K's monthly industry report, comparable sales fell for the fifth straight quarter to kick off 2017. Foot traffic was down 3.6% during the first three months of 2017.

You can read up on the cause of this so-called "restaurant recession" in an article I wrote here. But that's enough of the negative talk -- this discussion is a positive one. In spite of the overall industry pain, some brands are still kicking. Here are three of them.

The "creator" of upscale casual dining

Cheesecake Factory (NASDAQ: CAKE) just reported quarter number 28 of rising comparable sales in a row, up 1.1% at the end of last year. TDn2K's industry report has been showing California as bucking the restaurant pullback trend, so it comes as no surprise that the Southern California-based chain is doing well, with 37 of its 194 Cheesecake Factory locations in the U.S. are in the Golden State.

Industry trends have also been showing that casual fine dining is doing well during the downturn compared to other dining experiences. For example, explosive growth in the mid-market fast-casual segment has begun to cannibalize itself, with some growth chains opening new locations at double-digit rates. The new openings have begun to outstrip local consumers limited eating-out budget growth, pushing comparable sales into the negative.

RELATED: Discover the 50 best restaurants in the world:

51 PHOTOS
World's Best Restaurants 2017
See Gallery
World's Best Restaurants 2017

50. Hof van Cleve, Flanders, Belgium

Facebook

49. Tegui, Buenos Aires, Argentina

Facebook

48. Restaurant Tim Raue, Berlin, Germany

Twitter

47. Vendome, Cologne, Germany

Instagram

46. L'Astrance, Paris, France

Courtesy photo

45. Den, Tokyo, Japan

Courtesy photo

44. Brae, Victoria, Australia

Instagram

43. Reale, Abruzzo, Italy

Courtesy photo

42. Borago, Santiago, Chile

Getty

41. Ultraviolet by Paul Pairet, Shanghai, China

Instagram

40. Cosme, New York, USA

Facebook

39. Relæ, Copenhagen, Denmark

Instagram

38. Azurmendi, Biscay, Spain

Instagram

37. Saison, San Francisco, USA

Instagram

36. Dinner by Heston Blumenthal, London, England

Getty

35. Septime, Paris, France

Facebook

34. De Librije, Zwolle, Netherlands 

Facebook

33. Astrid y Gaston, Lima, Peru

Getty

32. Attica, Melbourne, Australia

Instagram

31. Pavillon Ledoyen, Paris, France

Getty

30. Arzak, San Sebastian, Spain

Getty

29. Le Calandre, Rubano, Italy

Courtesy photo

28. Nahm, Bangkok, Thailand

Getty

27. The Ledbury, London, England

Getty

26. The Clove Club, London, England,

Getty

25. Tickets, Barcelona, Spain

Getty

24. Amber, Hong Kong, China

Getty

23. White Rabbit, Moscow, Russia

Instagram

22. Quintonil, Mexico City, Mexico

Facebook

21. Alinea, Chicago, USA

Facebook

20. Pujol, Mexico City, Mexico

Reuters

19. Geranium, Copenhagen, Denmark

Reuters

18. Narisawa, Tokyo, Japan

Reuters

17. Le Bernardin, New York, USA

Instagram

16. D.O.M., Sao Paulo, Brazil

Getty

15. Piazza Duomo, Alba, Italy

Courtesy photo

14. Restaurant André, Singapore

Getty

13. Alain Ducasse au Plaza Athénée, Paris, France

Courtesy photo

12. L'Arpege, Paris, France

Getty

11. Blue Hill at Stone Barns, New York, USA

Getty

10. Steirereck, Vienna, Austria

Facebook

9. Mugaritz, San Sebastian, Spain 

Getty

8. Maido, Lima, Peru

Getty

7. Gaggan, Bangkok, Thailand 

Reuters

6. Asador Etxebarri, Axpe, Spain

Instagram

5. Central, Lima, Peru

Reuters

4. Mirazur, Menton, France

Getty

3. El Celler de Can Roca, Girona, Spain

Getty

2. Osteria Francescana, Modena, Italy

Getty

1. Eleven Madison Park, New York, USA

Getty

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

By contrast, fine dining growth has been at a more measured pace. Case in point, Cheesecake Factory opened seven new locations last year, only a 3.7% increase. The company has also enjoyed falling food costs, which helped boost profits 6.1% in 2016. This slow-and-steady growth is the plan going forward, with another eight openings slated in the year ahead, four of which will be overseas.

The "better burger" gets bigger

Another California native, The Habit Restaurants(NASDAQ: HABT), is experiencing a similar story as above. With three out of every four of its 188 restaurants in the booming state, The Habit has been killing it.

It opened 30 new stores in 2016, a 21% increase in total count, to great success in spite of the crowded better-burger niche. The chain had 23.1% and 1.9% increases to revenue and comparable sales, respectively, in the last year. The stock struggled shortly after its IPO in late 2014, but it has been making a comeback as the business grows.

The Habit is just getting started in its expansion into new markets, and as many as 40 new openings are planned for 2017. Its key ingredient to success thus far has been the burger itself, often mentioned in surveys as near or at the top of America's best. Well-anchored on the West Coast, a showdown with expanding East Coast rival Shake Shack could be around the corner, though, as the two chains have begun to overlap. Only time will tell who the winner is, but The Habit has a head start.

Some people never grow up

Dave and Buster's Entertainment (NASDAQ: PLAY) is unique in that it's part restaurant, part gaming establishment. On the food side, the chain touts American gastro-pub style cuisine and an extensive bar, but the experience is what really sets Dave and Buster's apart. Who says arcades are only for kids?

That combination of food and fun has been a winning strategy. Last year, it translated into 15.9% and 3.3% expansion to revenue and comparable sales, and the bottom line rose 52%.

Dave and Buster's isn't content with its record score set in 2016. The brand is still pretty small, at only 95 total locations, but the plan is to open another 12 or 13 during 2017. Longer term, the goal is to double the count to over 200 just in North America alone. Ambitious, yes, but the company demonstrated it can still win even when overall dining budgets shrink.

The overall news about restaurants has been trending negative for a year now, but that doesn't make all restaurants unworthy of investor money. These brands have built winning menus and guest experiences that have weathered the storm and won over an increasing number of diners. If your restaurant stocks are struggling, put these names on your radar.

10 stocks we like better than Dave & Buster's Entertainment
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Dave & Buster's Entertainment wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.