If you can forgive yet another Simpsons reference, it's been tough times lately for the Tipsy McStaggers of the world. At the end of last month, we saw squishy results at Applebee's (NASDAQ:APPB), and yesterday's numbers from near-twin Ruby Tuesday (NYSE:RI) are strikingly similar. The stock is trickling down toward its 52-week low even though investors had a whiff of the aroma a couple months back.
This should sound familiar. Management says comps are down and earnings will miss analysts' estimates -- by about 10%. Look for $0.30 and not the $0.33 predicted, folks. How bad is the damage? It's not pretty: Same-store sales dropped 8.6% at company stores, while franchises dropped 5.1%.
My colleague Alyce Lomax wondered if the retailers' low-end/luxury divergence that I discussed recently might also hit home at restaurant chains. Perhaps, but even long-suffering Cracker Barrel Group (NASDAQ:CBRL) managed to nose up the comps lately. The hard truth is that once the big growth from expansion is gone, it gets tough for some of these outfits to differentiate themselves from one another. Raise your hand if you can tell the difference between Ruby Tuesday, Applebee's, and Brinker International's (NYSE:EAT) Chili's, without consulting the buzzing neon signs above the doors. The Tipsy McStagger wisecrack is up there in the lead for a reason.
As investments, most of these chains leave me hungry. Once a firm has expanded into just about every strip mall space available, I like to see good comps and good free cash flow. None of the above qualify. If you're on the munch for a restaurant value, Lone Star Steakhouse (NASDAQ:STAR) has good free cash flow to make up for its slim comps increases and it's buying back shares by the bushel.
For related Foolishness:
- Too soft, Applebee's?
- Is Lone Star overpaying its execs? Discuss it on the Fool's boards. (Free trial required.)
- Bling or bargains, where should you invest?
- Don't say you weren't warned.
Seth Jayson once blew the chance to sell his famous, fiery drink to a large restaurant chain. At the time of publication, he had no positions in any company mentioned.
