By Ben Fox Rubin
TAKING THE PULSE: An economic slowdown in China and continued
weakness in Europe are expected to continue dragging on major U.S.
restaurant companies' profits in the second quarter. The
slower-than-expected pace of the U.S. market's recovery could cause
additional headwinds, along with increased competition from Yum
Brands Inc.'s (YUM) Taco Bell and newly public Burger King
Worldwide Inc. (BKW), which are making comebacks.
Wall Street expects the most year-over-year improvement from
growth-focused companies such as Chipotle Mexican Grill Inc. (CMG)
and Starbucks Corp. (SBUX), while McDonald's Corp. (MCD), the
reigning leader in fast-food, is expected to post minor growth
during the quarter amid the tough global economy.
COMPANIES TO WATCH:
Yum Brands Inc. (YUM) -- July 18
Wall Street Expectations: Analysts surveyed by Thomson Reuters
predict an adjusted profit of 70 cents a share on revenue of $3.12
billion. A year ago, Yum posted income of 65 cents, or 66 cents
excluding some items, on revenue of $2.82 billion.
Key Issues: The parent company of Taco Bell, KFC and Pizza Hut
has seen its struggling domestic business show signs of a comeback
recently, posting a promising 5% rise in same-store sales for its
first quarter. Much of that improvement came from Taco Bell's
successful launch in March of its Doritos Locos Tacos, with a nacho
cheese Doritos taco shell. The chain hopes to build on that
strength with a rollout of its "Cantina Bell" menu, which will
focus on fresher and higher-quality ingredients, taking after
Chipotle Mexican Grill Inc.'s (CMG) offerings. Yum continues to
focus most of its energy on China and other emerging markets, where
its Pizza Hut Casual Dining and KFC chains are booming in urban
areas. However, the company could be losing its edge there, as
commodity and wage inflation pressure margins and as the country
shows signs of an economic slowdown. In the company's first
quarter, China posted 14% same-store sales growth, trailing
previous quarters, which had same-store sales growth of around
20%.
Chipotle Mexican Grill Inc. (CMG) -- July 19
Wall Street Expectations: The company is expected to report
earnings of $2.30 a share and revenue of $707 million. Last year,
Chipotle's income came in at $1.59 and revenue was $571.6
million.
Key Issues: The chain has become a leader in fast-casual Mexican
food, generating strong sales productivity and restaurant margins,
as customers have responded to its mix of high-quality, freshly
prepared foods and an industrial-chic decor. The long-time investor
favorite has repeatedly posted double-digit quarterly earnings
growth, but its shares have sagged since April, as concerns about
decelerating sales have taken hold. Also, federal investigations
into Chipotle allegedly hiring illegal immigrants may linger for
years, the company has warned. The burrito chain may be able to
allay investors' worries about its growth with its expansion plans
in Europe and a push to speed up its sometimes discouragingly long
lines during the lunch and dinner rushes. But, the continuing
federal investigations should cost the company more in legal fees,
while also potentially disrupting its business.
McDonald's Corp. (MCD) -- July 23
Wall Street Expectations: Analysts expect a profit of $1.38 a
share on revenue of $6.95 billion. A year earlier, the company
reported earnings of $1.35 and revenue of $6.91 billion.
Key Issues: McDonald's has seen its sales growth threatened by a
challenging global economy, marked by high unemployment in Europe
and a cooling economy in China. Considering those pressures, the
world's largest fast-food operator could see weaker-than-expected
second-quarter results, R.W. Baird recently said, as same-store
sales grew less than anticipated during both April and May. Still,
the company is expected to continue outpacing its rivals, as it has
for several years running. McDonald's should be aided by the U.S.
market, which as become its biggest growth engine despite
over-saturation of fast-food restaurants and resurgent competitors.
A diverse menu and a continuous pipeline of new products, including
its Blueberry Banana Nut Oatmeal and Cherry Berry Chiller, should
also support guest traffic and sales.
Starbucks Corp. (SBUX) -- July 26
Wall Street Expectations: Analysts expect fiscal third-quarter
income of 45 cents a share on revenue of $3.33 billion. A year ago,
Starbucks posted a profit of 36 cents a share and revenue of $2.93
billion.
Key Issues: Starbucks continues to build beyond its core cafe
business in the U.S. with aims of becoming a global consumer
powerhouse. Its broad array of growth projects include energy
drinks, expansion plans in China and a single-serve espresso
machine. The company hopes to make food a bigger part of its
business with its $100 million acquisition of La Boulange Bakery,
and is piloting new stores in Seattle--a juice-bar called Evolution
Fresh and a Tazo Tea Store. However, Europe--though a small part of
its overall business--continues to weigh on earnings, as a soft
economy and some company missteps there have harmed store sales
more than it anticipated. China, though, continues to be a major
growth engine, with seven consecutive quarters of more than 20%
growth.
Brinker International Inc. (EAT) -- Aug. 9
Wall Street Expectations: The market forecasts a fiscal
fourth-quarter profit of 58 cents a share on revenue of $735
million. The company a year earlier reported earnings of 49 cents a
share, or 48 cents excluding some items, on revenue of $717.5
million.
Key Issues: Brinker is in the second stage of an overhaul plan
of its Chili's Grill & Bar chain, in which kitchen remodeling
and other cost-cutting efforts are helping it better manage
margins. It is also working at making its menu and image more
attractive. The turnaround strategies appear to be taking root, as
fiscal first-quarter revenue rose at its strongest rate in years,
and its same-store sales and guest traffic rose in its third
quarter. Like others in the casual-dining sector, Brinker remains
challenged by high commodity prices and cost-conscious customers.
Darden Restaurants Inc. (DRI), owner of the Olive Garden and Red
Lobster chains, late last month reported weaker same-store sales,
casting uncertainty over the rest of the casual-dining
industry.
Write to Ben Fox Rubin at ben.rubin@dowjones.com