Commodity prices have fallen lately but inflation is still at multi-year highs, compelling the Fed to go for steep interest rate hikes, fueling fears of a recession. The retail sector has been one of the biggest suffers of soaring inflation, with people aggressively cutting down on spending.

However, spending has been on the rise at restaurants and bars despite rising commodity prices. Higher sales are also prompting owners to hire more employees, which is a sign of the industry getting back on its feet. Given this scenario, stocks like Wingstop Inc. (WING Quick QuoteWING - Free Report) , Dine Brands Global, Inc. (DIN Quick QuoteDIN - Free Report) , Chuy's Holdings, Inc. and BJ's Restaurants, Inc. (BJRI Quick QuoteBJRI - Free Report) are likely to benefit in the near term.

Restaurant Sales Increase

The Commerce Department said on Dec 15 that sales at U.S. bars and restaurants jumped 0.9% in November, after increasing 1.6% in the previous month. The figure is definitely encouraging, given that the solid rise comes despite a sharp overall retail sales decline in November.

Retail sales fell 0.6%, double the expectation of a decline of 0.3% and decreasing the most in the past five months. However, on a year-over-year basis, retail sales grew 6.5% in November.

Rising commodity prices have forced consumers to reduce their spending, causing the retail industry to struggle. Nevertheless, the restaurant sector has managed to put on a strong performance, with sales growing almost every month.

People have been eating out more frequently since the economy reopened after the COVID-induced lockdown. Hence, the steady uptick in business at pubs and restaurants is not unexpected.

The coronavirus outbreak in March and April 2020 hit the retail sector the most, with sales almost halting at restaurants. Sales began to increase once again after that, but the recovery was shaky because COVID-related limitations were still in effect and millions were hesitant to confidently engage in social situations.

The industry started showing signs of recovery for the first time this year. Sales have now reached their pre-pandemic levels and set to rise in the coming months.

Moreover, consumers typically spend more on services than on goods during normal times. This changed during the pandemic, with people spending more on goods than services as there weren't many options.

The increase in restaurant sales, in contrast to a sharp decline in retail sales, shows that consumers have started spending on services once again. Sales at bars and restaurants are the only service category in the retail sales report.

Industry Facing Challenges

Restaurants are putting in their best efforts to combat the challenges, including rising prices. Restaurant operators are putting a strong emphasis on digital innovation, working toward increasing sales, and implementing cost-cutting strategies, which has been helping in the industry's recovery.

Given the growing importance of the Internet, digital innovation is now a key element in boosting sales. Large restaurant chains are frequently using delivery services and Internet platforms that have been driving sales.

The industry has also been adding a lot of jobs. The leisure and hospitality sector added 88,000 jobs in November, according to the latest report from the Labor Department. However, the sector still has 980,000 fewer employees than it did before the outbreak.

Despite this, more employment will probably be created throughout the holiday season as revenues are anticipated to increase further, helping the industry recover. According to a new survey by the National Restaurant Association, 57% of consumers plan to eat out at restaurants during the holiday season. Besides 50% plan to order delivery or takeout for parties and gatherings at home during the holiday season.

Stocks to Watch

Given this situation, it would be ideal to invest in these four restaurant stocks.

Wingstop Inc. franchises and operates restaurants. WING’s operating segment consists of the Franchise and Company segments. Wingstop offers cooked-to-order, hand-sauced and tossed chicken wings.

Wingstop’sexpected earnings growth rate for next year is 16.3%. The Zacks Consensus Estimate for current-year earnings has improved 5.7% over the past 60 days. WING currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dine Brands Global, Inc. is a full-service dining company. It operates and franchises restaurants under both the Applebee's Neighborhood Grill & Bar and IHOP brands. DIN’s Applebee's restaurants offer casual food, drinks, casual dining, and table services and IHOP restaurants provide full-table services, and food and beverage offerings.

Dine Brands Global’s expected earnings growth rate for next year is 14.1%. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the past 60 days. DIN currently has a Zacks Rank #2 (Buy).

Chuy's Holdings, Inc. owns and operates full-service restaurants serving a distinct menu of authentic Mexican food. CHUY offers menu, which includes appetizers, soups and salads, tacos, burritos, enchiladas, fajitas and combination platters.

Chuy's Holdings’ expected earnings growth rate for next year is 10.9%. The Zacks Consensus Estimate for current-year earnings has improved 6.6% over the past 60 days. Presently, CHUY has a Zacks Rank #2.

BJ's Restaurants, Inc. owns and operates a chain of high-end casual dining restaurants in the United States. BJRI’s restaurants operate as BJ’s Restaurant & Brewery /BJ’s Restaurant & Brewhouse and BJ’s Pizza & Grill and or BJ’s Grill. The menu offers a wide range of dining options, including everyday lunch and dinner, special occasions and late-night business.

BJ's Restaurants’s expected earnings growth rate for next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. Presently, BJRI has a Zacks Rank #3 (Hold).