As burger giants McDonald's (NYSE: MCD), privately held Burger King, and Wendy's (NYSE: WEN) continue to distance themselves from their dollar menu days with premium salads and edible chicken nuggets, no one is cheering louder than Checkers (Nasdaq: CHKR).
Between its namesake concept and its Rally's chain, the company's fleet of nearly 800 drive-thru restaurants provide bargain-priced fast food to diners on the go.
With its larger rivals retreating from buck burgers and pocket-change milkshakes, Checkers commanded a sweet 9% gain in same-store sales this past quarter. More importantly, it earned a healthy $0.47 a share in the year's final period. Even if you back out the $0.19 per share in favorable charges, it's still a "Whopper" of a quarter for a company whose stock may be as cheap as its roadside grub.
Excluding one-time gains the company earned $1.02 a share last year -- or about three pennies more than what a Checkers chili cheeseburger will run you. While the shares have more than doubled over the past year, they are trading at just 11 times last year's profits.
But even that low multiple may have been hard to stomach in recent years, as the company went through leadership changes, a painful reverse stock split, and a liberal share-dispensing game plan. Checkers has got some new moves now that it's playing with the black pieces instead of the red ones.
Over the past three years, the company has managed positive comps for all but one quarter. Clearly, the company has retained its popularity. However, it wasn't until this summer that the company started growing the chain again, after a series of closures and transfers of company-owned and franchised stores. Checkers' operating margins have beefed up considerably over the past year, and the company is gradually cleaning up its balance sheet. Things will only get better.
Chains like In-N-Out, Sonic (Nasdaq: SONC), and Checkers should continue to thrive in 2004, as the burger heavies play out their pricing-war truce. These smaller box concepts were built for low overhead efficiency and low prices are human nature. With the fast-food giants moving towards healthier menu changes, these smaller drive-in and drive-thru specialists will be able to cater to the guilty pleasures for junk food that aren't likely to fade away any time soon.
Checkers is poised to move ahead in this environment. And unlike its board game namesake, it won't need to move diagonally to get there.
Do you like the drive-in and drive-thru restaurants? How do they stack up against Mickey D's? Will they follow McDonald's into healthier fare? All this and more -- in the McDonald's discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz wonders if junk food is safer than junk bonds. He may be hungry but he does not own shares in any companies mentioned in this story.
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