Eating Up the Diners

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The Conference Board's Consumer Confidence survey may have been down sharply in February and flat in March, but you'd never know it by looking at restaurant sales.

Fool contributor Dave Marino-Nachison reported yesterday that Jack in the Box (NYSE: JBX) expects a 7.5% jump in second-quarter sales. The company was already expecting robust 4% to 4.5% growth. The revision might well imply that diners love what Jack has, Atkins format or otherwise.

Sales aren't just booming at Jack's, or just on the left coast and in the South. National heavyweight Wendy's (NYSE: WEN) chimed in with a 9% gain in same-store sales in March, the same percentage gain it turned in the month before.

Up a level, systemwide gains in same-store sales at Outback Steakhouse (NYSE: OSI) chains ranged from good (3.1% at Carrabba's) to exceptional (over 20% at Fleming's and Roy's). That makes Panera Bread's (Nasdaq: PNRA) 3.8% increase look downright soft. Anyone who thinks that consumers aren't spending had better not dally in front of the restaurant doors!

Sales like these will certainly drive earnings. Jack in the Box's operating margins of 6.1% trail the 17% margins of powerhouse McDonald's (NYSE: MCD) and the 12.9% margins at Pizza Hut, Taco Bell, and KFC owner Yum! Brands (NYSE: YUM). But with excellent sales growth, Jack's margins are going to increase and necessarily drive free cash flow higher.

A combination of excellent sales growth and prospects led Landry's (NYSE: LNY) to double its quarterly dividend to $0.05 a share. Expect other chains to follow suit.

With consumer confidence stagnating and gasoline prices at all-time highs, you'd think consumers would be eating out less. Instead, restaurant sales are booming. For investors looking for new opportunities, the menu of restaurant stocks is a good place to start.

Interested in talking about food or restaurant stocks with other investors? Try The Motley Fool's Recipes/Cooking discussion board or W.D.'s favorite, Yum! Brands.

Fool contributor W.D. Crotty owns stock in McDonald's and Yum! Brands, and loves to visit their local restaurants.