Indianapolis-based Steak n Shake (NYSE:SNS) is all set to report earnings tomorrow for the third quarter of fiscal 2006. Estimates for the current quarter and the fiscal year are for a decline in earnings. Will Steak n Shake confound the analysts or will it meet expectations? Read on for what to expect.

What analysts say:

  • Buy, sell, or waffle? Quite a spread, with two saying buy, three holds, and one saying shake it off (sell). No changes from three months ago.
  • Revenues. $155.1 million is the consensus view, about 5% higher than last year.
  • Earnings. $0.25 per share is the call here, down $0.03 from last year.

What management says:
In the earnings release for last quarter, president and CEO Peter Dunn commented, "The same-store sales environment remains difficult, given the impact of rising energy prices and other influences on discretionary consumer spending. We are focused on offsetting these external forces by driving customer traffic with innovative products, improved service quality and faster service. While we anticipate ongoing sales challenges, we are encouraged by the progress of our initiatives."

With same-store sales flat or down for many different chains (Wendy's (NYSE:WEN), for example), it's a difficult time to be a restaurant. However, not all are experiencing such drops -- McDonald's (NYSE:MCD) and Jack in the Box (NYSE:JBX) both come to mind.

What management does:
While gross margins have been improving on a rolling trailing-12-month basis, thanks to lowered food costs, operating margins have fallen over the last five periods. Net margin has bounced around a bit, though the last period did show a slightly lower level.

Margins %*

12/04

4/05

7/05

9/05

12/05

4/06

Gross**

76.4

76.3

76.5

76.8

76.9

77.1

Operating

9.6

9.3

9.1

9.1

8.7

8.5

Net

5

4.9

4.8

5

4.8

4.7

Sales Growth %***

10.5

14.1

13.2

0.6

9.7

5.8

* Trailing-12-month data for quarter ending in month indicated.
** Based on gross profit defined as company-owned restaurant sales less cost of sales.
*** Year-over-year comparison for quarter ending in month indicated.
All data from relevant company 10-K and 10-Q filings.

One Fool says:
As I have commented before, and as fellow Fool Stephen Simpson has written regarding Steak n Shake, sliding same-store sales cannot always be attributed to macroeconomic factors. A while back, several companies blamed poor weather for slowdowns in growth. This year the favorite reason has been higher gasoline prices. Factors like these do impact this metric, but companies cannot rely solely upon those factors to explain results. Often, declines are not reversed unless the company brings out something the public wants.

For instance, Steak n Shake recently introduced a new set of shake flavors, with candy pieces mixed in. While it appears to be new at Steak n Shake, the concept is not new, as I first saw it at McDonald's quite a while ago. Will this and other initiatives slow down or reverse the trend? Check out the earnings report to find out.

Competitors:

  • McDonald's
  • Jack in the Box
  • Wendy's
  • Privately held Big Boy Restaurants

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Fool contributor Jim Mueller does not own shares in any company mentioned.