News
Burger chains get charred
By W.D. Crotty October 14, 2005 The fast-food business is going great guns. McDonald's (NYSE: MCD) just finished 30 consecutive months -- two and a half years! -- of increasing same-store sales. Sonic (Nasdaq: SONC) just completed 19 consecutive years of higher same-store sales. YUM! Brands (NYSE: YUM) expects 10% earnings-per-share growth in 2006 as the Chinese welcome KFC with open arms. But not every fast-food restaurant is enjoying similarly tasty growth.
October 13, 2005
October 14, 2005The fast-food business is going great guns. McDonald's (NYSE: MCD) just finished 30 consecutive months -- two and a half years! -- of increasing same-store sales. Sonic (Nasdaq: SONC) just completed 19 consecutive years of higher same-store sales. YUM! Brands (NYSE: YUM) expects 10% earnings-per-share growth in 2006 as the Chinese welcome KFC with open arms. But not every fast-food restaurant is enjoying similarly tasty growth.Backyard Burger (Nasdaq: BYBI), home to gourmet Black Angus hamburgers, turned in a disappointing second quarter (see results in PDF format). Year to date, company-owned restaurants have seen same-store sales sink 2.2%, and franchisees are nursing a 0.7% decline.
Backyard Burger's turning point may have come when Yum! Brands declined to continue using the vendor in its multi-brand units. Since then, Backyard has continued to add outlets, but the last four quarters have seen declining gross profits.
Backyard is also hurt by its presence in the southeastern U.S., where Hardee's, a CKE Restaurants (NYSE: CKR) brand, sells a premium-priced 100% Angus Thickburger. That's a lot of competition for higher-priced fare, especially when fast food is usually characterized as value-oriented. For that matter, at 37 times trailing earnings, I have to wonder what investors are watching when buying Backyard shares, particularly given recent earnings and less-than-positive behavioral signals from partners.
