Bob Is in a Comfort Zone

Comfort food isn't healthy, expensive, or suffering in this weak casual-dining climate.

Bob Evans (Nasdaq: BOBE) held up well in its latest quarter. Favorable comps at the namesake country cooking chain helped offset unit level declines at its smaller Mimi's Cafe concept, leading to a positive finish to close out its fiscal year.

The actual results do need a little clarification. The 4% gain in net sales is self-explanatory. However, the 24% spurt in earnings per share is deceptive on two counts. First, the company has swallowed a ton of shares outstanding over the past year. Net income actually rose by just 5%. However, even the 5% gain is overstated, as Bob Evans recorded a larger asset sale gain than it did a year earlier. Back that out, and the actual net income gain would be cut roughly in half.

Comps don't lie, though. In that sense, Bob Evans is also off to another good start in fiscal 2009 after a healthy May. The same can't be said for Mimi, which is a problem because the smaller casual dining chain has received the lion's share of the company's expansion attention.

Is comfort food the secret to attracting budgeting diners? Not entirely. Comps at Steak n Shake (NYSE: SNS) fell a sharp 6.3% during its latest quarter. However, that has been more the exception than the rule.

Cracker Barrel parent CBRL Group (Nasdaq: CBRL) saw comps hold up better at its restaurants than at its retail shops in its most recent quarter, although that trend reversed in May.

Breakfast specialists like Denny's (Nasdaq: DENN) and IHOP parent DineEquity (NYSE: DIN) put up positive comps during their last quarters. IHOP is on an impressive streak, rattling off 21 consecutive quarters of same-store gains.

This doesn't mean that the niche will coast through the balance of the year. Rising food costs and patron resistance to absorb those gains will challenge margins. Higher fuel prices will also eat into the disposable income that would go into eating out.

Investors in any of these companies will probably want to keep an eye on DineEquity. The moment that IHOP's 21-quarter streak comes to an end will be the moment comfort food leads to indigestion.