The burger and shake duo makes as much sense as peanut butter and jelly. Berkshire Hathaway's (NYSE:BRKa) (NYSE:BRKb) Dairy Queen has been capitalizing on this winning recipe for years with its fast food-style sites. Coming in as a tweener, Steak n Shake (NYSE:SNS) offers a mix of both drive-through as well as sit-in dining. And Friendly Ice Cream (AMEX:FRN) gives shake and burger lovers that traditional restaurant experience.
In the face of this competition, how is Friendly's faring? Let's look into its latest quarterly results and find out.
Shareholders will find there is little sweetness there. Net revenues for the fourth quarter were down 11.5% compared with the same period a year ago, with same-store sales from company-owned and franchised units declining 1.3% and 3.1%, respectively. Its unsavory top line can be partially attributed to there being one fewer week of operations than in the fourth quarter of 2004. Partially is the key word.
Friendly's biggest problem is its inability to increase customer traffic. In its new annual 10-K filing, we find that management recognizes the need to further differentiate itself from the competition. It has a plan to turn its sandwich and ice cream shop into an even more full-service style restaurant. Upgrading the menu, the look of its restaurants, and the quality of management are all ways in which the company intends to distinguish itself.
In addition to these steps, during the conference call, CEO John Cutter added that Friendly's has introduced a prototype restaurant that it hopes to implement through a more aggressive franchising campaign. Expanding into new markets creates greater name identification among consumers and is critical for the company's other key growth strategy -- the distribution of premium ice cream desserts. Friendly's desserts, including its highly profitable decorated ice cream cake and a new reduced-fat line of products, are available in about 650 grocery store locations. Clearly, the customer is buying: In 2005, it sold 250,000 cakes, up from 50,000 the year before.
It is wise for Friendly's to distinguish itself. One of my criticisms of Ruby Tuesday (NYSE:RI) has been that as a restaurant chain, it is indistinguishable from another franchise down the block. The problem is that these changes do not come without cost, and Friendly's doesn't exactly have the most flexible balance sheet. While I believe management has the right ideas in place to achieve greater growth, until it can prove that it has the wherewithal to pull it off, my advice is to monitor this investment from the safety of a watch list, rather than at the risk of your portfolio.
For related Foolishness:
- Wendy's (NYSE:WEN) serves up some soggy figures.
- There are some frothy prospects for BJ'sRestaurants (NASDAQ:BJRI).
- Can Famous Dave's (NASDAQ:DAVE) put together a winning recipe for investors?
Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
