FAT Brands Inc. FAT is benefiting from its focus on unit expansion and strategic acquisitions. Also, the emphasis on co-branding opportunities and digital initiatives bodes well for FAT’s growth prospects. FAT has also scaled up its production capabilities at the company’s Georgia-based manufacturing facility, enhancing operational efficiency. However, elevated expenses are concerns.

Growth Catalysts for FAT Stock

FAT Brands has made significant strides in expanding its brand portfolio and global footprint over the past few years. The company has successfully added 18 distinct concepts in the last three years, boosting its market presence. FAT now operates or has locations under development in more than 40 countries and 49 U.S. states or territories, with a total of 2,300 plus locations. This rapid expansion highlights the company's commitment to organic growth and strategic acquisitions.

In the third quarter of 2024, FAT Brands opened 22 new units, bringing its year-to-date total through the quarter to 62 units. During the third quarter earnings call, FAT highlighted a strong development pipeline with signed agreements for around 1,000 new units in the coming years. Once fully operational, these units are expected to add $50 million to $60 million to its annual adjusted EBITDA. This increase in earnings will help reduce leverage over time, improving the company's balance sheet.

The company remains focused on growth through strategic acquisitions. Its acquisition of Smokey Bones, on Sept. 25, 2023, is aimed at supporting the rapid expansion of Twin Peaks. FAT plans to convert about 30 Smokey Bones locations into Twin Peaks in the next few years, reducing construction time by approximately 18 months. In September 2024, the company completed its first conversion in Lakeland, FL, growing sales from $3.6 million as a Smokey Bones to an annualized run rate of $8.3 million as Twin Peaks. FAT Brands has scheduled seven additional conversions for 2025 with more expected in 2026.

In addition to expanding its brand portfolio and global presence, FAT has also focused on enhancing the company’s operational capabilities. The company has scaled up production at its Georgia-based manufacturing facility, ensuring improved efficiency and meet growing demand. Through these efforts, FAT continues to solidify its position in the market, driving long-term growth.

This Zacks Rank #3 (Hold) company continues to leverage co-branding as a key growth strategy. In September, the company launched a co-branded online ordering platform for Great American Cookies and Marble Slab Creamery, in partnership with 3 Owl and Olo. This platform aims to enhance the digital experience for customers. As part of its ongoing digital transformation, FAT also introduced a new loyalty program and app for brands, integrating ordering and rewards to drive higher average check sizes.

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Shares of this multi-brand restaurant of America have gained 17.6% in the past six months compared with the Zacks Retail - Restaurants industry’s 11.5% rise.

Concerns for FAT Brands Stock

The company has been experiencing an increase in costs and expenses, due to acquisitions and other operational factors. In the first nine months of 2024, total costs and expenses increased 55.3% year over year to $460.3 million. This increase was mainly due to the acquisition of Smokey Bones in September 2023 and higher activity from company-owned restaurants and its manufacturing facility.

Stocks to Consider

Some better-ranked stocks from the Zacks Retail-Wholesale sector are:

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CMG delivered a trailing four-quarter earnings surprise of 9.8%, on average. The stock has surged 34.9% in the past year. The consensus estimate for CMG’s 2025 sales and earnings per share (EPS) indicates growth of 12.8% and 17.9%, respectively, from the year-ago period’s levels.  

Brinker International, Inc. EAT presently has a Zacks Rank #2. EAT delivered a trailing four-quarter earnings surprise of 12.1%, on average. The stock has surged 237% in the past year.  

The consensus estimate for EAT’s fiscal 2025 sales and EPS indicates growth of 9.3% and 44.2%, respectively, from the year-ago period’s levels.  

Shake Shack Inc. SHAK currently carries a Zacks Rank of 2. SHAK delivered a trailing four-quarter earnings surprise of 18.3%, on average. The stock has gained 90.5% in the past year.  

The Zacks Consensus Estimate for SHAK’s 2025 sales and EPS indicates a rise of 14.7% and 42%, respectively, from the year-ago period’s levels.

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