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News You Can Chew On

By Rick Munarriz - Updated Apr 5, 2017 at 8:02PM

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Restaurant stocks are turning tables and headlines.

There always seems to be restaurant news on the menu. As we do every week, let's take a look at some of this week's more appetizing stories.

1. Less dough in doughnuts
There is still no turnaround at Krispy Kreme (NYSE:KKD). The doughnut maker posted a wider quarterly loss as revenue fell by 9%. The company's near-term solution is to get smaller. It is looking to open smaller retail stores that use less capital. Some of its doughnuts will also get smaller, as the chain rolls out miniature versions, hoping to cash in on folks who are watching their caloric intake.

Then again, how many people walk into a Krispy Kreme with dieting on their minds?

All hope isn't lost here. Krispy Kreme -- despite all of the fiscal turbulence in recent years -- is still a killer brand. 

2. From IHOP to I stop
There will be less tip money in the pockets of DineEquity (NYSE:DIN) shareholders, now that the company behind IHOP and Applebee's is killing its quarterly cash dividend. The move will save the company $17 million a year, which DineEquity will now be able to apply to its outstanding debt.

Have we given DineEquity enough time with its Applebee's integration to brand the deal a mistake? IHOP investors seemed perfectly happy reaping the benefits of a consistent franchisee juggernaut, before it bit off more than it could chew in picking up the reeling Applebee's. The move is starting to parallel Hewlett-Packard's (NYSE:HPQ) arguably horrid purchase of Compaq a few years ago. HP's flagship printing business was a high-margin endeavor until the clumsy computer maker was snapped up. HP certainly turned things around, but not before bringing in a turnaround expert as CEO.

Pancakes aren't printers. Dinners aren't desktops. Still, DineEquity had better hope that it can tackle its debt effectively to offset the defection of yield-chasing income investors.  

3. Combat Carl action figures
CKE Restaurants (NYSE:CKR) is still flipping. The parent company of Carl's Jr. and Hardee's posted mediocre third-quarter results. Earnings from continuing operations of $0.10 a share fell shy of last year's $0.13 a share. Revenue fell by 4% to $336.6 million.

It's not that bad, though. For starters, the top-line drop is the result of the company handing off some of its company-owned restaurants to franchisees. Comps for both concepts actually inched higher during the period. Over on the bottom line, the company took a $4.9 million hit in interest expense to mark-to-market its interest-rate swap agreements. In other words, the top and bottom lines were weighed down by unique factors.

The company clearly isn't doing as well as McDonald's (NYSE:MCD), which rocked as usual when it posted a 7.7% spike in comps for November, but it's clear that the fast food chains have a leg up on the casual dining operators.

4. It's all about the pursuit of more dough
Remember when Nigel Travis stepped down as CEO of Papa John's (NASDAQ:PZZA) last week? The press release said he was leaving the company to "pursue another opportunity," but that is often a vague euphemism. Is the "opportunity" a new CEO gig or simply an American Idol audition or a life of stamp collecting?

Well, Travis is going to a real gig. He was named the new CEO of Dunkin' Brands, the company behind Dunkin' Donuts and Baskin-Robbins. Yes, that's right: He is going from one dough maker to another.

5. Growing beyond the chihuahua
Growth is alive and well at Yum! Brands (NYSE:YUM). The company behind fast food titans Taco Bell, KFC, and Pizza Hut held an analyst conference on Thursday, expressing its confidence in growing earnings by at least 10% next year.

That is certainly good news, given that some fast food chains that are posting top-line gains are still facing pressure on the way down to the bottom line. Yum! is doing quite well in China, where it sees 15% to 20% operating income growth next year, before factoring in the yuan-vs.-dollar fluctuations.

Well done, Yum! I'm almost warming up to your corporate moniker.

Check out this week's dessert specials:

Longtime Fool contributor Rick Munarriz is the rare foodie who embraces restaurant chains. He does not own shares in any of the companies in this story. 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.

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Stocks Mentioned

HP Inc. Stock Quote
HP Inc.
HPQ
$34.08 (4.89%) $1.59
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
YUM
$118.60 (1.43%) $1.67
Papa John's International, Inc. Stock Quote
Papa John's International, Inc.
PZZA
$91.49 (0.84%) $0.76
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$261.40 (0.52%) $1.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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