Fast Food Leaders' Earnings Mixed Bag

The earnings IHOP, Wendy's and Krispy Kreme reported yesterday weren't as delicious as Wall Street had hoped. Regarding IHOP, Motley Fool points out the disappointment and hope.

Revenue of $85.07 million missed expectations, but year-over-year same-store sales growth was a respectable 3.1% for the quarter, driven by increased traffic. Promotions such as the Cinn-A-Stack definitely appear to be working for IHOP, and the company has three more planned for the year, including the current funnel cake-related campaign.

As fellow Fool John Bluis pointed out after last quarter, revenue growth remains IHOP's weak spot. Last quarter it was 3%, and this quarter it fell to 2.6%. Franchise growth over the next several years will help boost these numbers; the company is expanding into Mexico and the U.S. Virgin Islands while continuing to grow in the U.S. and Canada.

AP reports Wendy's International Inc. had a second-quarter loss on Thursday because of charges linked to aggressive cost-cutting of its struggling Baja Fresh Mexican Grill chain and its chopping of 355 jobs at its corporate offices. The third-largest hamburger chain says it lost $29.1 million, or 25 cents per share, for the quarter ended July 2, compared with profits of $70.8 million, or 61 cents a share, a year ago, despite an expected revenue bounce of 8%.

Denny's reported in its 2nd Quarter a 0.4% decrease in company same-store sales and a five-unit decline in company-owned restaurants since the second quarter of last year. Franchise revenue also decreased as a 17-unit decline in franchised restaurants offset a 1.4% increase in same-store sales at franchised restaurants. Look for Denny's pushing value added meals to attract increasingly cash strapped consumers.

But not all is melting. For those who know how to cook it just right, international operations has really been a big enchilada of profits for fast-food franchises this last quarter.

Krispy Kreme Doughnuts Inc. settled a lawsuit brought by its biggest franchisee, Los Angeles-based Great Circle Family Foods.  A Krispy Kreme subsidiary, Southern Doughnuts LLC, will buy three Great Circle Krispy Kreme stores in the California cities of Burbank, Ontario and Orange for $2.9 million.

Wendy's spin-off, Tim Hortons, has been going like hamburgers during a busy lunch hour. The Canada-based coffee and doughnut chain had a 25 percent increase in profit in the second quarter as its sales were up 10.4 percent.

Yum's profits were up too. Yum Brands, Inc. on Wednesday "posted higher quarterly net income and raised its full-year profit outlook based on robust quarterly sales in China and expectations of a strong second half of 2006 in its international business."

Meanwhile, the Motley Fool asks, "Is there gold at the Golden Arches?" Its World Cup promotions helped drive a 57 percent rise in quarterly profit [mainly from Europe].

It will sell its remaining stake in Chipotle Mexican Grill Inc. by the end of October to focus on its hamburger restaurants.

"McDonald's turnaround has been impressive, and there's a good argument that even with pesky macroeconomic concerns at work, cheap fast food will appeal to customers on the run -- especially consumers who don't feel too flush with cash."

Then the Fools asks a most interesting question:

"I've never understood why Wendy's has long traded at a premium to McDonald's on a P/E basis (31 for Wendy's versus 18 for McDonald's). What gives? Then there's Burger King, with a P/E of 56. Talk about a whopper!"

Why indeed.