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1Q preview: Trends positive for restaurants

1Q preview: Trends positive for restaurants

First-quarter earnings are set to flood the market starting this week, with reports from such heavy hitters as McDonald’s, Yum! Brands, Chipotle, The Cheesecake Factory and BJ’s Restaurants, and early signs point to a positive quarter for most brands, despite increased commodity costs and fears about rising gas prices.

Wednesday evening, casual-dining chains BJ’s and The Cheesecake Factory posted positive same-store sales, lending credence to securities analyst Mark Kalinowski’s report that March, the final month of the first quarter, was the best month for casual-dining in terms of sector-wide same-store sales in about five years.

Yum continued to rely on its overseas strength to boost corporate profit and sales, while its U.S. operation struggled. Same-store sales in the United States fell 1 percent, encompassing an increase of 1 percent at KFC, flat sales at Taco Bell and a decline of 3 percent at Pizza Hut.

Chipotle continued to dominate, with double-digit gains in net income, total revenue and same-store sales.

“We continue to believe economic indicators on balance are positive for restaurant companies,” securities analyst Brad Ludington at KeyBanc Capital Markets said in a report, “with our observations of stable job growth, increasing consumer income and spending and rising near-term consumer confidence outweighing our concerns toward housing and rising gas prices in the near term.”

Ludington noted that food commodity concerns should be tempered, as increases won’t be as severe as the fourth quarter. He noted that cost increases had slowed in March and the beginning of April, with significant pullbacks in produce leading the way.

Rising gas prices, however, may be a continuing concern as companies head into the second quarter.

“We continue to believe that if gas prices reach and maintain the $4.25 to $4.50 range for an extended period, this could represent a psychological breaking point for consumers at multiple income levels, which could further slow the broader economic recovery,” Ludington said in his report.

First-quarter earnings reports:

Yum! Brands Inc.: First-quarter net income rose to $264 million, or 54 cents per share, compared with earnings of $241 million, or 50 cents per share, in the same quarter a year earlier. Latest-quarter revenue increased 3 percent to $2.43 billion.

The company reported that operating profit rose 22 percent in China and 12 percent in its International division, but declined 13 percent in the United States. Yum noted that Taco Bell’s recent trouble with a lawsuit affected sales and hurt profits.

Strong international development continued with 223 new restaurants opened, including 92 new units in China. Yum cited food inflation as a string headwind for its U.S.-based locations, and expects 6 percent commodity inflation for the full year.

Full earnings statement

Chipotle Mexican Grill Inc.: First-quarter net income totaled $46.4 million, or $1.46 per share, up 22.6 percent from earnings of $37.8 million, or $1.19 per share, in the same quarter a year earlier. Revenue rose 24.3 percent to $509.4 million. Same-store sales increased 12.4 percent.

During the quarter Chipotle opened 12 new restaurants, including one relocation, bringing the total restaurant count to 1,095.

Full earnings statement

BJ’s Restaurants Inc.: First-quarter net income increased 65 percent to $7.2 million, or 25 cents per share, from earnings of $4.4 million, or 16 cents per share, in the first quarter of 2010. Latest-quarter revenue rose 19 percent to $144.9 million. Same-store sales increased 7.8 percent.

BJ's Restaurants owns and operates 104 casual-dining restaurants under the BJ’s Restaurant & Brewery, BJ’s Restaurant & Brewhouse or BJ’s Pizza & Grill brand names.

Full earnings statement

The Cheesecake Factory Inc.: First-quarter earnings rose about 1 percent to $20.5 million, or 34 cents per share, versus $18.7 million, or 31 cents per share, in the same quarter a year earlier. Latest-quarter revenue rose 3.3 percent to $418.8 million.

Same-store sales increased 1.6 percent at The Cheesecake Factory and Grand Lux Cafe. By concept, same-store sales increased 2.1 percent at The Cheesecake Factory and fell 3.8 percent at Grand Lux.

Full earnings statement

Contact Sarah Lockyer at [email protected].

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