It's been another busy week for restaurant stocks, with earnings pouring in from many of the industry's bellwethers. Like a short-order cook, I'm here to break it all down for you and see if I can fix up something appetizing for your plate.
Hungry? Well, you came to the right place. Let's go.
The hotcake hotbed served up its fourth-quarter results this morning. The numbers are more fruity than "rooty tooty," because the company finalized its $2 billion acquisition of Applebee's in late November.
That's important, because one can't read too much into either the 143% top-line surge or the precipitous drop in profitability. We're not comparing oranges to oranges here. It's more like pitting maple syrup against butter pecan.
Sure, revenue soaring 143% higher to $213.6 million is impressive, but that's the result of having the larger Applebee's on the company's books for all of December. Just wait until you see the spurt in the current quarter, when IHOP gets three full months of the casual-dining chain to play with.
IHOP posted a profit of just $0.01 a share before an undesignated hedge loss related to snapping up Applebee's -- well below the $0.57 a share it earned a year earlier -- but that isn't a fair knock either. IHOP is just starting the lengthy digestion process here, but the substantially higher debt tab isn't patient.
The real positive here is that comps at IHOP's namesake restaurants climbed 3.7% higher during the quarter. The value-minded chain has held up well during the economic downturn, and it will be interesting to see if that helps carry the now-bloated company through the next few trying quarters.
The company behind the cozy Cracker Barrel chain chimed in yesterday. Like IHOP, the company's quarterly results can't be correctly interpreted at first glance.
If someone told you that revenue had inched 4% higher to $634 million, but income from continuing operations on a per-share basis soared 42% to $0.85, you'd think things were be going swimmingly, right? Margins must be going through the roof! Well, they're not. Net income from continuing operations actually dipped slightly during the period. The key here is that CBRL has voraciously repurchased 34% of its shares outstanding over the past year.
I can always applaud a well-timed buyback. As a CBRL shareholder for several years, I like it. However, I'm also realistic. CBRL didn't transform itself into a growth-stock story overnight. I'm glad to see same-store sales inch higher (at both the food and retail shop levels), but CBRL is now a slow-growing mature operator. It sees the top line inching just 2% to 3% higher for all of fiscal 2008.
Both Domino's and Papa John's reported yesterday -- awfully convenient, since it helps us compare the two rivals.
Well, the only thing that Domino's and Papa John's had in common during their latest quarters is that each one grew revenue by 2%. Then again, in an industry that's in a constant flux of franchising and re-franchising company-owned stores, the top line won't say much.
Dig deeper and you'll see that Papa John's won the battle this time. Comps rose by 2.1% at Papa John's during the fourth quarter. Domino's may have posted a huge spurt in international comps -- the way it has for 56 consecutive quarters -- but things aren't going as well closer to home (where it still gets 90% of its business). Comps dipped domestically at Domino's.
The bottom-line disparity is even wider. Domino's profitability was shaved in half, the grim result of the company taking on gobs of debt in pursuit of a one-time beefy dividend last year. Papa John's profits after a series of one-time items climbed 21% higher to $0.52 a share.
So, yet again, reports can't be simply skimmed over. There are too many companies like CBRL and Brinker
With results all over the map, investors will certainly find something to chew on in this sector. Invest wisely and carry a big spoon.
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Longtime Fool contributor Rick Munarriz heads out with the family to his nearest IHOP on weekend nights when the eatery is practically empty. Even though he prefers Original House of Pancakes, the stuffed French toast at IHOP will do on short notice. He does not own shares in any of the companies in this story, save for CBRL Group. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.