Restaurant Stocks: Earnings to Watch

(Restaurant stocks earnings article updated with Darden Restaurants results.)

NEW YORK ( TheStreet) -- Expectations were high for the $184 billion restaurant sector this earnings season.

With the inherent limits to the number of new stores any one brand can open, still-uncertain economic times and trends pointing toward rising commodities all converging, valuations in the restaurant space were relatively swollen, noted Deutsche Bank analyst Jason West.

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The industry as a whole is expected to grow 2.5% annually through 2015. Key drivers of the sector, according to IBISWorld analyst Nima Samadi, include consumer spending, elevated health consciousness, competition from full-service restaurants, per capita disposable income and overall consumer sentiment.

West was more optimistic in the short term, citing the combination of "still-recovering sales and still-benign costs (both food and labor)" making for "a positive backdrop to third quarter of 2010 results." The analyst also noted that weak economic data stokes the likelihood of more federal aid in the way of stimulus, which tends to be good for discretionary stocks like those in the restaurant sector.

>>5 Restaurant Stocks to Buy Now

Stifel Nicolaus analyst Steve West said that "easy comps and extensive cost savings should offset strained sales from depressed consumer spending, boosting restaurant third-quarter 2010 earnings-per-share growth of 6% (though still less than 10% on average)."

He expected average comps growth of 18% in the casual dining space to outpace a 2% comps uptick in the quick-service space -- the first time in years that casual restaurants would outpace.

Same-store sales, also known as comps, which measure sales at stores open at least one year -- a closely watched metric in the restaurant industry -- were expected to grow modestly in the third quarter, Deutsche Bank's West said, with the group averaging 1.2% growth in the period. Despite the expected uptick, the analyst expected demand would "just hold steady in coming months, rather than show robust acceleration," and that comparisons would be more difficult in the fourth quarter for most stocks in the sector.

Stifel's West noted "most casual dining concepts are expected to report flat-to-positive same-store-sales comps, but the low single-digit gains compared with mid-single digit declines for the third quarter during the past 2 to 4 years further supports our view that consumers will only gradually trickle back to casual dining."

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Stifel's West believed a number of restaurant sector names were "currently priced for a 'beat and raise' scenario, but our expectations for continued stagnant (at best) comp growth and cost inflation could lead to a rotation out of higher beta names to higher yield with international exposure."

He also said the gap between casual dining chains and quick service (QSR), or fast food, chains remained narrower than in 2009, with easier comparisons at those in the casual space which should provide year-over-year growth.

Consumers will continue to keep a firm check on discretionary spending, and when they do decide to spend money on luxuries like eating out they turn to lower price points, said Samadi. "Fast food restaurants will benefit as the economy improves, unemployment rates decline and consumers begin to spend money again on luxuries like eating out."

Here then is a look at some of the biggest names in the sector, and what investors should be thinking about as the earnings season wraps up.

Darden Restaurants

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Darden Restaurants ( DRI) reported fiscal second quarter earnings on Dec. 20.

Revenue: $1.73 billion, compared with year-earlier sales of $1.64 billion.

Net Income: $74.5 million, compared with year-earlier profits of $60.3 million.

Net Earnings Per Share: 54 cents , compared with year-earlier EPS of 43 cents per share.

Analysis: JPMorgan had an overweight rating on the stock and $56 price target.

Darden Restaurants posted better-than-expected quarterly profits but downwardly revised its guidance for full-year same-store sales growth.

>>Darden Slides on Forecast

"The opportunity for sales upside and opportunity for other cost cuts to offset possible higher commodities in the second half of fiscal 2011 and in fiscal 2012 will be key to the stock's performance in 2011," noted JPMorgan Chase analysts.

Darden said it now expects comps to grow 2% this year, compared with its prior forecast for growth between 2% and 3%.

Darden grew overall comps by 1.4%, including growth of 2% at Olive Garden restaurants and 6.8% at Longhorn Steakhouse, offsetting a 1.6% decline at Red Lobster.

Darden maintained a 32-cent dividend to be paid next on Feb. 1 to shareholders of record on Jan. 10.

Darden also reaffirmed its guidance for fiscal 2011 EPS growth of 14% to 17%, or in a range of $3.26 to $3.35 per share. Analysts' consensus call was at the high end of that range, expecting full-year EPS of $3.35.

"The overall quarter was mixed as generally in-line sales were offset by better store margins," JPMorgan analysts noted, pointing out that performance at "Red Lobster continues to drag on the overall comp."

The analysts added that "we continue to believe the company, along with Texas Roadhouse ( TXRH), has the unique ability to still cut costs vs. peers to offset commodity pressures."

Biglari Holdings

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Biglari Holdings ( BH) reported fiscal fourth quarter earnings on Dec. 13.

Revenue: $164.4 million, compared with year-earlier sales of $160.4 million.

Net Income: $8.4 million, compared with a year-earlier loss of $3.4 million.

Net Earnings Per Share: $6.26, compared with year-earlier EPS of $2.35 per share.

Analysis: In August analysts from CL King reiterated an accumulate rating on Biglari Holdings shares, and raised their price target on the stock by $25 to $375.

The operator of Steak n Shake and Western Sizzlin restaurants said "Steak n Shake had a banner year" with customer traffic up 8.6% in the fourth quarter while same-store sales grew 6.8%.

Western Sizzlin results had a small impact on Biglari's 2010 results since the steak and buffet restaurant chain was acquired partway through the year, on March 30, and therefore only reported its results from the date of acquisition.

Overall top-line results came in shy of expectations for revenue of $172.7 million. Biglari's quarterly profits topped Wall Street's consensus call.

Biglari warned that in 2011 it is unlikely to exceed prior-year profits as it focuses on reinvesting in its infrastructure, training, supply chain and franchising.

In a letter to shareholders, chairman Sardar Biglari addressed the significant changes the company has undergone since he took control just over two years ago. "Simply put, BH is in the business of owning other businesses in whole and in part," he said. " Wholly or majority-owned businesses steer earnings. Those not retained for their growth, upstairs to the parent for reallocation to fuel holding company growth. With this perspective, BH is a liquidity provider."

RealMoney contributor Jonathan Heller wrote in October that Biglari Holdings got a fair amount of attention earlier this year due to actions by Sardar Biglari, including changing the name of the company from The Steak n Shake Company, as well as "Biglari's proposed hedge-fund-like compensation package, which would have rewarded him handsomely but only after the company exceeded a hurdle in per-share book-value growth. Both of these incidents could be used in the "what not to do" section of a public relations textbook."

"Biglari did a good job of turning around both Western Sizzlin and Steak 'n Shake," Heller wrote. "Now, with the firm's new structure as a holding company, Biglari is more of a capital allocator than restaurateur -- and this is not new to him, given his history in running the Lion Fund."

Krispy Kreme

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Krispy Kreme ( KKD) reported fiscal third quarter earnings on Dec. 1.

Revenue: $90.2 million, compared with year-earlier sales of $83.6 million.

Net Income: $2.4 million, compared with a year-earlier loss of $2.4 million.

Net Earnings Per Share: 3 cents, compared with year-earlier loss of 4 cents per share.

Analysis: Analysts from CL King initiated coverage of Krispy Kreme in July with a strong buy rating and $5 price target.

The donut shop operator posted far better-than-expected quarterly results and raised its 2011 outlook. Analysts' consensus call had been for earnings of $100,000, or zero cents per share, on revenue of $87.8 million.

"Higher sales by company and franchise shops drove profit improvements in the KK Supply Chain segment, and our International Franchise business continued to exceed our expectations," said CEO Jim Morgan.

Krispy Kreme said comps rose 5% in the recent quarter, the eighth consecutive quarterly increase. It added a net increase of 16 stores in the quarter. As of Oct. 31 there were 85 company-owned Krispy Kreme stores and 564 franchised locations.

Krispy Kreme upped its outlook for fiscal 2011. It now expects operating income (EBIT), exclusive of impairment and lease termination costs, to be in a range of $17 million to $20 million. That's up from its prior outlook for full-year EBIT in a range of $13 million to $17 million. Analysts expect the restaurant operator to book EBIT of $16 million in fiscal 2011.

In 2012 Krispy Kreme expects to open 5 to 10 company stores, 5 to 15 domestic franchise stores, and more than 30 international franchise stores.

"We expect continued organic same store sales growth in our domestic stores, but believe international franchise same store sales will continue to be pressured by the substantial growth in international markets in recent years," Morgan said.

The CEO conceded that uncertainty surrounding commodity costs are likely to grow, posing some uncertainty when forecasting future operating results. "Accordingly, we are working to reduce the consumption of certain key ingredients, and are evaluating the timing and scope of price increases needed to offset higher input costs."

Krispy Kreme forecast 2012 EBIT to be in a range of $22 million to $24 million, an increase of 29% to 41% from the low end of its revised fiscal year 2011 guidance, and an increase of 10% to 20% from the top end of the fiscal 2011 range.

"It is important to note that this outlook is very preliminary, and we expect to establish more formal guidance in conjunction with the release of our fourth quarter results in April," Morgan added.

Cracker Barrel Old Country Store

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Cracker Barrel Old Country Store ( CBRL) reported fiscal first quarter earnings on Nov. 23.

Revenue: $598.7 million, compared with year-earlier sales of $581.2 million.

Net Income: $23.7 million, compared with year-earlier earnings of $18 million.

Net Earnings Per Share: $1.01, compared with year-earlier EPS of 78 cents per share.

Analysis: Analysts from Standpoint Research issued a downgrade on Cracker Barrel shares in September to hold, from accumulate. In August RBC Capital Markets, which had a sector perform rating on the stock, dropped its coverage of the restaurant chain.

Cracker Barrel topped earnings expectations but revenue came up short of expectations for $600.3 million.

Cracker Barrel said comps and retail sales increased 2.4% and 1.5%, respectively, in the recent quarter, thanks in part to a 0.5% uptick in guest traffic.

The Lebanon, Tenn.-based restaurateur reaffirmed its fiscal 2011 outlook for revenue to grow between 3% and 4.5%, or between $2.47 billion and $2.51 billion.

Forecasted revenue growth is based on the opening of 11 new Cracker Barrel units during the year, comps growth between 1.5% and 3% and comparable store retail sales growth between 2% and 4%.

Fiscal 2011 EPS is projected to be in the range of $3.95 to $4.10 per share. Analysts expect Cracker Barrel to post full-year EPS of $4.07 per share.

Jack in the Box

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Jack in the Box ( JACK) reported fiscal fourth quarter earnings on Nov. 22.

Revenue: $563.2 million, compared with year-earlier sales of $540.3 million.

Net Income: $4 million, compared with year-earlier earnings of $40.6 million.

Net Earnings Per Share: 7 cents, compared with year-earlier EPS of 70 cents per share.

Analysis: Stifel Nicolaus analyst Steve West had a hold rating on Jack in the Box shares with a price target of $24.02. In October, RBC Capital Markets upgraded Jack in the Box to outperform from sector perform, and raised its price target on the stock by $6 to $28.

Jack in the Box missed earnings expectations but revenue came in better-than-expected for the thirteen weeks ended Oct. 3.

Overall comps at Jack in the Box restaurants fell 3.3%, including 2.8% at franchised stores and 4% at company-owned locations. The decline was "impacted by high unemployment in our major markets for our key customer demographics," said CEO Linda A. Lang. Comps at Qdoba restaurants grew 5.6%, attributed to demand for its Craft 2 menu -- a combo-plate option where customers can mix and match two items -- and higher catering sales.

Jack in the Box forecast fiscal 2011 first quarter comps to be in a range from down 1% to up 1% at Jack in the Box restaurants, and up 4% to 6% at Qdoba restaurants. For the fiscal year, comps should be in a range from down 2% to up 2% at Jack in the Box restaurants, and up 2% to 4% at Qdoba.

Fiscal 2011 earnings per share are expected in a range of $1.41 to $1.68, in line with analysts' consensus call for EPS of $1.54.

Ahead of the earnings release, West had lowered his forecast for 2010's fiscal fourth quarter to 34 cents per share, below consensus and down 52% year-over-year. The revision was attributed to rising ground beef prices, lower refranchising gains and comp deleverage. The analyst expected same-store sales to decline 4%, with comps at its Qdoba restaurants up 4%.

West expected Jack in the Box to book a 1.5% to 2% decline in quarterly revenue despite an extra operating week in the quarter, with net new unit growth of 1% to 2% overall, offset by refranchising. "Though we believe the refranchising program continues to benefit margins, recently the decline in company comps is causing significant deleverage leading to lower restaurant-level operating margins, expected down 280 to 290 basis points," he noted.

Franchise royalty growth of 15% should offset some of the margin declines, he added, though what he calls the "lumpy" timing of refranchising deals could cause a drop in consolidated operating margins of up to 310 basis points, after excluding refranchising gain differences. West also said to look for a three-cent-per-share gain from non-operating items based on a lower share count and lower interest expense, offset partially by a higher tax rate.

Burger King

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Burger King ( BKC) reports 2011 fiscal first quarter earnings Nov. 10.

Expected Revenue: $614.1 million, compared with year-earlier sales of $636.9 million.

Expected Net Income: $44.1 million, compared with year-earlier earnings of $46.6 million.

Expected Net Earnings Per Share: 32 cents, compared with year-earlier EPS of 34 cents per share.

Analysis: Stifel Nicolaus's Steve West has a hold rating on Burger King shares with a $23.98 price target.

Burger King announced in early September it had agreed to be taken private by 3G Capital for $24 per share .

Despite the pending acquisition West said Burger King's results should be used by investors as a guide to the quick-service segment as a whole, as well as for global dining-out trends.

He expects fiscal 2011 first-quarter same-store sales will be down 1.5% due to declining traffic and reduced discounting, compared with comps declines of 4.6% in the first fiscal quarter of 2010.

"We believe the new breakfast menu and advertising along with adding Seattle's Best coffee should create more competition in the market, although we still believe the need for accelerated remodeling at Burger King is more important to compete with McDonald's than any other menu or strategy initiatives," he added.

Wendy's Arby's Group

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Wendy's Arby's ( WEN) reported quarterly earnings Nov. 12.

Revenue: $861.2 million, compared with year-earlier sales of $903.2 million.

Net Loss: $900,000, compared with year-earlier earnings of $14.7 million.

Net Loss Per Share: 0 cents, compared with year-earlier earnings per share of 3 cents.

Analysis: Deutsche Bank's Jason West had a buy rating on Wendy's Arby's ahead of its report. Analysts from UBS reiterated a neutral rating on Wendy's Arby's shares several days ahead of its earnings announcement, raising their price target on the stock by 50 cents to $5.

Wendy's booked a surprise loss and adjusted its forecast , saying 2010 results would likely come in toward the low end of its previously announced guidance.

>>Wendy's Disappoints With Surprise Loss

At Wendy's restaurants, comps fell 1.7% and declined 5.9% at Arby's restaurants.

CEO Roland Smith said "third-quarter results are simply not satisfactory to us," and that the company continued to work on its long-term growth potential, expanding its breakfast platform at Wendy's, remodeling stores of both brands, and expanding internationally.

He added that the Arby's brand turnaround remained a key focus and was showing some progress with comps up 5.5% in October. Wendy's and Arby's merged in a $2 billion deal in September 2008.

The company now expects fiscal 2010 adjusted earnings before interest, taxes, depreciation and amortization to be at the lower end of its previously announced range, which was for a 3% to 5% decline compared with fiscal 2009 EBITDA of $411.6 million. Analysts' consensus call was for EBITDA of $400.2 million for fiscal 2010.

Same-store sales at Wendy's North America company-operated restaurants are expected to decline 1% in fiscal 2010. Arby's should post negative same-store sales but show a year-over-year improvement.

Analysts from UBS reiterated a neutral rating on Wendy's Arby's shares several days ahead of its earnings announcement, raising their price target on the stock by 50 cents to $5.

Tim Hortons

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Tim Hortons ( TAST) reported quarterly earnings Nov. 11.

Revenue: $670.5 million, compared with year-earlier sales of $610.7 million.

Net Income: $73.8 million, compared with year-earlier earnings of $61.2 million.

Net Earnings Per Share: 42 cents, compared with year-earlier EPS of 34 cents.

Analysis: Analysts from Morgan Joseph initiated coverage of Tim Hortons in late September, giving the stock a buy rating.

Tim Hortons posted strong revenue and earnings growth in the third quarter, but the Canadian coffee shop chain plans to close underperforming stores.

>>Tim Hortons Falls on Store Closure Plan

Third-quarter profits jumped 20.7%, and revenue grew 9.8%, but results were negatively impacted by a $20.9 million asset impairment charge related to underperforming markets in the New England region.

The coffee chain plans to close 36 restaurants before the end of 2010, 34 of which are in the Providence and Hartford markets, as it works to "reinvest in our core growth markets in the Northeast and Midwest U.S. where the brand continues to demonstrate strengthening average unit volumes, cash flows and brand progression."

Hortons said same-store sales, or sales at stores open at least one year -- a closely watched metric in the restaurant industry -- rose 4.3% in Canada and 3.3% in the U.S.

Hortons' overall sales results beat expectations for revenue of $657.3 million, but profits came up short. Excluding the asset impairment charge, earnings per share would have been 54 cents, a penny ahead of expectations.

Carrols Restaurant Group

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Carrols Restaurant ( TAST) reported quarterly earnings Nov. 9.

Revenue: $201.6 million, compared with year-earlier sales of $201.2 million.

Net Income: $4.6 million, compared with year-earlier earnings of $5.6 million.

Net Earnings Per Share: 21cents, compared with year-earlier EPS of 26 cents.

Analysis: Analysts from RBC Capital Markets reiterated an outperform rating on Carrols shares in August, reducing its price target on the stock by $2 to $9. In April, equities research firm Raymond James upgraded Carrols' shares from outperform to strong buy.

Comps grew 8.8% at Carrols' Pollo Tropical restaurants and 1% at Taco Cabana. Comps decreased 3.2% at Carrols' franchised Burger King locations.

"The combination of higher sales and margins substantially increased Pollo Tropical's contribution to profitability," said CEO Alan Vituli, conceding that "our Burger King restaurants, however, continued to weigh negatively on our overall performance. Comparable restaurant sales remained under pressure at our Burger Kings and profitability was further impacted by aggressive value-oriented promotions and higher commodity costs."

Looking ahead, Carrols said the current quarter will have one less week than the fourth quarter of 2009 and will negatively impact revenue by $13.6 million and earnings by 7 cents per share.

Pollo Tropical comps are expected to increase 6%, Taco Cabana comps are expected to be flat and Burger King comps are expected to decreased 3% to 4%.

Commenting on Burger King's recent private equity takeover agreement, Vituli said that "we anxiously await a review of the brand's marketing and promotional strategy, but remain cautious with respect to a near-term turnaround."

The restaurateur expects to close seven of its Burger King locations in 2010.

Starbucks

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Starbucks ( SBUX) reported quarterly earnings Nov. 5.

Revenue: $2.8 billion, compared with year-earlier sales of $2.4 billion.

Net Income: $278.9 million, compared with year-earlier earnings of $150 million.

Net Earnings Per Share: 37 cents, compared with year-earlier EPS of 20 cents.

Analysis: RBC Capital Markets analysts reiterated a sector perform rating on Starbucks shares following its better-than-expected earnings report, and raised its price target on the stock by $3 to $30.

Starbucks grew global comps by 8%. Global traffic increased 5%.

>>Starbucks Percolates on Earnings Beat

Operating margins pushed sharply higher to 17.3% in the U.S. and 13.8% internationally.

Starbucks reiterated its fiscal 2011 targets introduced over the summer for net new store growth of 500, including 100 in the U.S. and 400 internationally, the majority of which are expected to be licensed stores. It also targeted mid-to-high single-digit revenue growth based on a 52-week comparable year, driven by low-to-mid single-digit comparable store sales growth.

The coffee chain raised its fiscal 2011 EPS guidance to a range of $1.41 to $1.47 per share.

Starbucks maintained its 13-cent dividend , to be paid on Dec. 3 to shareholders of record on Nov. 18.

Denny's

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Denny's ( DENN) reported quarterly earnings Nov. 3.

Revenue: $107.2 million, compared with year-earlier sales of $116.6 million.

Net Income: $9.9 million, compared with year-earlier earnings of $10 million.

Net Earnings Per Share: 10 cents, compared with year-earlier EPS of 10 cents.

Analysis: Feltl analysts reiterated a buy rating on Denny's shares, and raised their price target on the stock to $4 from $3.50.

Famous for its Moons Over My Hammy and Grand Slam offerings, the all-day breakfast chain posted lower year-over-year profits and revenue.

Denny's comps decreased 0.7% at company-operated stores and 1.2% at franchised locations. Same-store guest counts rose 2.3% at company units, the strongest performance since the first quarter of 2005, the company said.

Denny's reaffirmed its fiscal 2010 guidance for same-store sales to fall between 2% and 4%, and adjusted EBITDA to be in a range between $71 million and $75 million. Adjusted income before taxes is expected in a range between $23 million and $28 million.

Feltl analyst Mark E. Smith told TheStreet recently that the real story behind Denny's has been its push to sell around 300 of its company-operated stores to franchisees. When stores are sold, the parent company no longer counts its revenue on its own top line, distorting its fundamentals. But it also means Denny's no longer carries the overhead costs of running those stores, all the while collecting 4% of their sales as royalties.

Around 85% of Denny's restaurants are franchised today, compared with 65% three years ago, he said.

Denny's opened 61 new locations in the quarter, including 48 Flying J conversions. As the company works to convert Flying J and Pilot-branded truck stops into Denny's it will lower its overhead costs even further, Smith said, since it only takes about $600,000 to do each opening, compared with $1.3 million to open a new Denny's. The truck stop-travel centers also typically bring in higher revenue and better margins than traditional Denny's stores since there's a stable crop of truckers and customers coming in off the highways.

TheStreet recently tapped Denny's as among the riskiest restaurant stocks for investors , though the restaurant chain recently completed refinancing all its debt to a lower cost credit facility of $300 million.

Smith said Denny's recapitalization brings no real interest rate risk, and lower rates across the board, all of which puts Denny's in a much better position going forward. The analyst expects Denny's will start using some of the cash to buy back shares and further reduce its debt.

DineEquity

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DineEquity ( DIN) reported quarterly earnings Nov. 2.

Revenue: $335.4 million, compared with year-earlier sales of $333.6 million.

Net Income: $7.8 million, compared with year-earlier earnings of $7.9 million.

Net Earnings Per Share: 44 cents, compared with year-earlier EPS of 46 cents.

Analysis: DineEquity, parent company of Applebee's Neighborhood Grill & Bar and IHOP Restaurants, easily topped expectations with adjusted earnings of 95 cents per share, or $16.6 million. Analysts' consensus call had been for earnings of 68 cents per share, or $13.9 million.

DineEquity grew domestic systemwide comps at Applebee's by 3.3% in the recent quarter. Domestic franchise same-store sales increased 3.8% and company-operated Applebee's increased 1.2%. Company-operated comps growth reflected a higher average guest check, including a 1.7% increase in menu pricing, partially offset by declines in guest traffic.

At IHOP restaurants, domestic systemwide comps edged up 0.1%, reflecting a higher average guest check partially offset by declines in guest traffic.

Restaurant operating margins at Applebee's company-operated restaurants improved 120 basis points to 14.8% in the recent quarter, largely driven by favorable occupancy costs and better sales, offset by higher labor and utility costs.

A successful refinancing of $1.8 billion in the recent quarter led DineEquity to raise its full year outlook.

DineEquity now expects 2010 cash from operations in a range between $155 million and $165 million. Free cash flow should be in a range between $125 million and $135 million; Applebee's and IHOP domestic system-wide comps should range between positive 1% and negative 1%; operating margins at Applebee's company-operated restaurants should range between 14.25% and 15.0%;

DineEquity sold 61 company-operated Applebee's restaurants located in Minnesota and parts of Wisconsin. It also plans to sell 20 company-operated Applebee's restaurants located in the Roanoke and Lynchburg markets in Virginia -- a deal which should close in the fourth quarter -- plus another 36 company-operated Applebee's restaurants located in St. Louis, Missouri and parts of Illinois, which should close in the first quarter of next year.

The company expects franchisees to open up to 70 new IHOP and 30 new Applebee's restaurants this year.

Ruth's Hospitality Group

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Ruth's Hospitality Group ( RUTH) reported third-quarter earnings Oct. 29.

Revenue:$79.8 million, compared with year-earlier sales of $76.1 million.

Net Loss: $500,000, compared with year-earlier losses of $1 million.

Net Losses Per Share: 1 cent, compared with year-earlier losses-per-share of 4 cents.

Analysis: Analysts were mum on Ruth's shares following its earnings announcement, but the stock was upgraded to buy from hold back in January by analysts from Deutsche Bank. At the time Piper Jaffray also upgraded Ruth's stock, to neutral, from underweight.

More recently, Wells Fargo Securities analysts lowered their earnings expectations for Ruth's to 30 cents per share, from 35 cents, for 2010 and to 35 cents per share, from 40 cents, for 2011. The analysts expected Ruth's to book comps growth of 3% in the third current quarter, down from its prior estimate for comps growth of 5%.

In the recent quarter Ruth's grew comps 4.9% at company-owned Ruth's Chris Steak House restaurants, while same-store sales at Mitchell's Fish Market decreased 2.8%.

"During the third quarter, we generated our strongest comparable restaurant sales at the Ruth's Chris brand since the fourth quarter of 2006, and that helped narrow our net loss compared to the year-ago period," said CEO Michael P. O'Donnell. The CEO added that Ruth's is "seeking alliances with the gaming and hospitality industries" and hoping to expand the Mitchell's Fish Market concept in Florida.

The restaurateur's quarterly revenue came in shy of expectations for sales of $80.1 million. Losses per share were in line with analysts' consensus call.

Ruth's Hospitality is the operator of the awkwardly named Ruth's Chris Steak House chain of restaurants, as well as Mitchell's Fish Market, Columbus Fish Market, Mitchell's Steakhouse and Cameron's Steakhouse restaurants. It was recently tapped as one of the riskiest restaurant stocks for investors .

Buffalo Wild Wings

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Buffalo Wild Wings ( BWLD) reported third-quarter earnings Oct. 26.

Revenue:$151.3 million, compared with year-earlier sales of $132.7 million.

Net Income: $8.5 million, compared with year-earlier earnings of $6.9 million.

Net Earnings Per Share: 47 cents, compared with year-earlier EPS of 38 cents per share.

Analysis: Feltl analysts issued a downgrade on Buffalo Wild shares from strong buy to buy after it beat earnings expectations but missed on revenue and offered a tepid forecast. Analysts from RBC Capital Markets reiterated a sector perform rating, and raised its price target on the stock to $50 from $47.

Deutsche Bank's West had a buy rating on Buffalo Wild shares ahead of the report.

Buffalo Wild posted same-store sales growth of 2.6% at company-owned restaurants and 0.3% at franchised restaurants.

Investors should focus on comps, wings and guidance, West noted. He expected "flattish" same-store sales, an expectation he admitted was conservative.

Buffalo Wild said "we believe we can achieve at least flat same-store sales at company-owned restaurants for the fourth quarter and 2010 net earnings of 20% growth for the year."

It offered a glimpse into current quarter results saying that for the first four weeks of the fourth quarter, same-store sales at company-owned locations are down 0.7% and down 1.7% at franchised locations.

West expected standard 20% EPS growth guidance for fiscal 2011.

The analyst likes Buffalo Wild Wings because of its market share gains, new unit growth, and new unit maturity, which drive above-average sales and earnings growth over time. He sees upside to his comps expectations for the third quarter.

Chicken wing costs are down 10% to 15% year-over-year, he said, which should provide a positive tailwind for margins in the second half of the year.

West likes Buffalo Wild's "clean balance sheet," with about $4 per share in net cash.

The analyst also likes that Buffalo Wild's fiscal 2011 EV/EBITDA (enterprise value over earnings before interest, tax, depreciation and amortization) has a multiple of 7.2 times, below the sector average of 7.5 times, despite above-average growth.

Panera Bread

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Panera Bread ( PNRA) reported third-quarter earnings Oct. 26.

Revenue: $372 million, compared with year-earlier sales of $335 million.

Net Income: $22.8 million, compared with year-earlier earnings of $18.9 million.

Net Earnings Per Share: 75 cents, compared with year-earlier EPS of 61 cents per share.

Analysis: Barclays Capital reiterated an equal weight rating on Panera shares following its earnings announcement, and raised its price target on the stock by $1 to $87. Deutsche Bank had a buy rating on the stock ahead of the report, and in early October upped its price target to $100, from $91.

Panera's quarterly earnings were in line with expectations but top-line sales came in just shy of expectations for revenue of $373 million .

Still, the sandwich and salad purveyor was optimistic. Panera raised its earnings guidance for the current quarter, saying it now expects to earn between $1.15 and $1.17 per share in the fourth quarter. That's as much as a nickel past Wall Street's expectations for fourth-quarter earnings of $1.13 per share.

"We're coming right through this recession as strong as ever," Executive Chairman Ronald M. Shaich told TheStreet.

Comps grew 6.9% in the quarter, including a 5.5% increase at company-owned stores and a 7.9% increase at franchise-operated locations.

For fiscal 2011 Panera expects sales to grow between 4% and 6%, partly due to "modest price increases of approximately 1.5% during fiscal 2011 to cover inflation."

Panera maintained its forecast for fourth-quarter comps to grow between 4% and 6% year-over-year, and 7% to 8% growth for 2010. Quarterly comps expectations assume a 1% to 3% increase in sales and average check growth of 3%. The 2010 target assumes transaction growth between 1.5% and 2.0% and average check growth of 5.5% to 6.0%.

Comps were up 4.9% so far in the current quarter, the company reported, including 4.4% at company-owned stores and 5.4% at franchised locations.

Quarter-to-date same-store sales data provided "increased confidence in our +5.0% and +5.0% projections, respectively, despite more difficult comparisons in the last quarter of the year," Piper Jaffray analysts noted.

The equity research firm maintained its overweight rating on Panera shares and increased its price target on the stock to $103, from $97.

Panera's operating margins, which improved by 20 basis points in the third quarter, should improve by another 25 to 75 basis points in the fourth quarter and 100 to 150 basis points for 2010, the company said.

"We remain encouraged by the company's SSS trends and believe the increasing operating margins and solid growth pipeline remain all the more impressive," noted Piper Jaffray.

Brinker International

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Brinker International ( EAT) reported quarterly earnings Oct. 27.

Revenue: $654.9 million, compared with year-earlier sales of $696.5 million.

Net Income: $17.1 million, compared with year-earlier earnings of $15.8 million.

Net Earnings Per Share: 21 cents, compared with year-earlier EPS of 15 cents.

Analysis: UBS reiterated a neutral rating on Brinker shares in early October, and raised its price target on the stock to $20, from $17.

The operator of Chili's Grill & Bar and Maggiano's Little Italy restaurant brands said its strong double-digit earnings gain was helped by lower tax rates and reduced expenses.

Profits beat expectations but sales came up short.

Comps grew 4.2% in the quarter, dragged by sluggishness at Chili's. Maggiano's saw comps grow 1.4%.

Total operating costs and expenses fell to $622.5 million in the quarter.

Brinker expects its tax rate to fall to 20.4%, from 23.4%.

McDonald's

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McDonald's ( MCD) reported third quarter earnings Oct. 21.

Revenue: $6.3 billion, compared with year-earlier sales of $6.05 billion.

Net Income: $1.39 billion, compared with year-earlier earnings of $1.26 billion.

Net Earnings Per Share: $1.29, compared with year-earlier EPS of $1.05.

McDonald's beat top- and bottom-line expectations for the quarter, growing profits 10.3% and revenue 4.1% . The Golden Arches said its nationwide promotion of McCafe Frappes and Smoothies, plus the everyday affordability of its Dollar Menu, helped boost sales in the quarter.

>>McDonald's Beats on Smoothie Sales Gain

Comparable same-store-sales, or sales at stores open at least one year -- a key metric in the restaurant industry -- grew 6% globally, including growth of 5.3% in the U.S., 4.1% in Europe and 8.1% in Asia/Pacific, Middle East and Africa.

Investors should continue to keep a close eye on food costs, which are generally going up, said Janney Capital Markets analyst Mark Kalinowski in an appearance on CNBC, pointing out that McDonald's gross margins where better-than-expected in the recent quarter, indicating the company is addressing any qualms shareholders may have with its fundamentals.

Analysis: DB's Jason West, Stifel's Steve West and Kalinowski have buy ratings on McDonald's stock.

Kalinowski explained that fast food operators like McDonald's are typically better able to cope with rising commodity and other input costs because of their highly franchised model of operations. Franchisees bare the brunt of higher food costs, not the franchisor, he said.

DB's West advised investors ahead of the report to focus on September-October comps, especially in Europe. September same-store sales should grow 3.6% globally, he forecast, with 3.5% growth in the U.S. and Europe, and 4% growth in Asia Pacific, Middle East and Africa.

"We expect Europe to settle into a range of +3-4% in coming months as menu pricing, remodels, breakfast/drive-thru expansion, and McDonald's dominant competitive positioning drive healthy comps, despite some macro headwinds," he noted ahead of McDonald's earnings release.

Stifel's West has a $77.32 price target on MCD shares, noting the Golden Arches "continues to pace the industry in sales and operating performance around the world." He was looking for 5% comps growth in the U.S., 4% in Europe and 8% in APMEA.

The analyst had expected 2.5% to 3% total revenue growth, year-over-year, including the impact of foreign exchange, and 40 to 45 basis points operating margin increase on lower labor and operating costs, leveraged by same-store sales momentum and cost controls.

Stifel's West also expected McDonald's to "continue its aggressive share repurchases " in the fourth quarter of 2010 and into 2011.

Kalinowski has an $83 price target on MCD shares. He forecast comps would improve in the U.S., and expected September revenue would rise 2% to 6.1%. October revenue figures would rise 2% o 5.7%, he noted.

Chipotle Mexican Grill

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Chipotle Mexican Grill ( CMG) reported third quarter earnings Oct. 21.

Revenue: $476.9 million, compared with year-earlier sales of $387.6 million.

Net Income: $48.2 million, compared with year-earlier earnings of $34.5 million.

Net Earnings Per Share: $1.52, compared with year-earlier EPS of $1.08.

Chipotle handily beat expectations and reported a 39.9% rise in earnings for the third quarter thanks in large part to an 11.4% jump in comparable same-store sales.

Analysis: RBC Capital Markets maintained a sector perform rating on Chipotle shares following its stellar earnings report, and raised its price target to $185. Stifel's West maintained his buy rating, and upped his price target to $215, from $183.69.

DB's West said key issues this earnings season are commodities, comps and 2011 guidance. He noted that Chipotle cautioned shareholders about slight food costs inflation in the second half of 2010 but didn't extend that guidance to 2011. He expected flat cost of goods sold, assuming that higher input costs would be passed on to consumers, noting that "CMG's tone around food costs versus willingness to raise prices will be important."

Comp expectations were high, and DB's West was looking for growth of 9% in the closely-watched metric. He expected CMG to offer guidance on 2011 same-store-sales, likely in the low-to-mid single digit range.

In the earnings report Chipotle said comps would grow by a high single-digit percentage for 2010, and a low single-digit percentage for 2011.

Stifel's West expected comps growth of 7%, and 13% unit growth leading to 19% to 20% revenue growth. His EPS expectations were two cents below consensus at $1.28 per share, though he noted that Chipotle "remains the top high-growth company in the restaurant space and continues to gain market share."

The analyst was looking for higher gross margins, based on lower food costs and improved efficiencies, to offset higher labor and operating expenses.

Chipotle said it opened 22 new restaurants, bringing the total restaurant count to 1,023, and anticipates opening between 135 and 145 additional restaurants next year.

Yum! Brands

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Yum! Brands ( YUM) reported quarterly earnings Oct. 5.

Revenue: $2.86 billion, compared with year-earlier sales of $2.78 billion.

Net Income: $357 million, compared with year-earlier earnings of $334 million.

Earnings Per Share: 74 cents, compared with year-earlier EPS of 69 cents.

Analysis: Analysts from Barclays Capital reiterated a rating of equal weight on Yum! shares with a price target of $48 following its earnings release, while RBC Capital Markets reiterated a rating of outperform with a price target of $55. Stifel's West has a hold rating and $48.62 price target on the stock. DB's West has a hold rating and $46.98 price target.

Yum!'s same-store sales grew 6% in China and 1% in the U.S. and its international division. In the U.S., comps grew 8% at Pizza Hut and 3% at Taco Bell. Comps at KFC fell 8%.

Overall expenses were flat despite Yum! paying a "significantly higher" tax rate of 27.4%, up from 19.9%.

"We continue to make progress at all three divisions and are especially pleased with the continued strong results from our China business," said CEO David Novak. "The combination of high-return, new-unit development, same-store-sales growth and increasing margins drove operating profit growth of 23% in China for the quarter."

DB's West raised his estimates on Yum! following the "solid" third-quarter results and outlook, expecting the fast food restaurant operator to earn $2.50 per share in fiscal 2010, up from $2.47.

"Strong international margin trends and a large cash balance provide good visibility on our new forecasts, with higher likelihood of upside than downside," he noted. "However, material EPS upside should be mitigated by the fact that the no-growth U.S. business still represents one third of profits, as well as tougher compares. With YUM shares already at a healthy multiple of about 17x our new 2011 expected EPS, we maintain a hold."

Stifel's West made particular note of Yum!'s 24% profit growth in China, and that 1% comps growth in the U.S. represents the first positive quarter by that metric in the region since the fourth quarter of 2008.

Accelerating in emerging markets like Russia, France and Vietnam, as well as more established European markets seems on track, he noted. Sales improvement in China should also continue to build.

Sonic

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Sonic ( SONC) reported 2010 fiscal fourth quarter on Oct. 19.

Revenue: $155.1 million, compared with year-earlier sales of $171.8 million.

Net Income: $4.7 million, compared with year-earlier earnings of $16.9 million.

Earnings Per Share: 8 cents, compared with year-earlier EPS of 28 cents.

Analysis: Analysts from RBC Capital Markets issued an upgrade on Sonic shares to outperform from sector perform, and raised their price target to $12 from $10.

Sonic said quarterly comps fell 6.4% in the recent quarter, with same-store sales declining 6.4% at franchise drive-ins and 6.1% at company-owned drive-ins.

Results disappointed analysts who expected net income of $14.1 million, or 23 cents per share. Sales were in line with expectations.

Sonic said impairment charges of $15 million in the quarter weighed on profits. Excluding one-time items, net earnings per shares would have been 23 cents, in line with analysts' consensus call.

Stifel's West has a sell rating on Sonic shares and $9.67 price target. "Due to the continued deleverage from significantly declining comp sales, higher labor, other operating costs and rising food costs primarily due to higher ground beef prices and no contracts will lead to extreme margin erosion in our view," he noted.

Like Wendy's and Jack in the Box, Sonic has been tapped as a potential private-equity takeover target

"The right private owner might help one or more of these chains eventually become better, and likely smaller, competitors" to McDonald's, UBS wrote in a note to investors last month.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to http://twitter.com/miriamsmarket.

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