Fast food is big business in the United States. The seemingly saturated market is filled with publicly traded stocks for investors to choose from. While many fast food chains might seem identical on the surface, not all companies are thriving.
In light of this, it’s crucial for investors to separate the wheat from the chaff when considering the major fast food chains. Here’s two to stay away from, and a clear industry winner for investors to buy.
Fast food, slow growth
On June 25, Sonic Corporation (NASDAQ:SONC) issued a third-quarter earnings report that left a lot to be desired. The $800 million company by market value saw its total revenue fall 2% and same-store sales, which measures only those locations open at least a year, inched up 0.1% from the prior year’s third quarter.
It’s worth noting that Sonic Corporation (NASDAQ:SONC)’s earnings per share rose 8%, to $0.26 per share during the quarter, but that was due largely to lower costs.
Going forward, the picture remains cloudy at best. Management expectations are for same-store sales growth in the low single-digits on a percentage basis. Even less convincing is the fact that management warned that the weak economic recovery may cause what it called ‘sales volatility.’
It seems that this is management’s way of subtly warning shareholders that the company may not realize any same-store sales growth this year. This is troubling, since cost-cutting can only go so far. Sales are the life-blood of any business, and Sonic Corporation (NASDAQ:SONC) isn’t exactly instilling confidence among its investors.
Meanwhile, competitor Jack in the Box Inc. (NASDAQ:JACK) wrapped up a difficult quarter of its own. The $1.7 billion stock reported second-quarter GAAP diluted earnings per share fell 37% year over year. On a non-GAAP basis, which excludes expenses like restructuring charges and losses from re-franchising, Jack in the Box Inc. (NASDAQ:JACK)’s diluted EPS rose 10%.
Same-store sales at both Jack in the Box Inc. (NASDAQ:JACK) and its Qdoba Mexican Grill were less than impressive, rising 0.9% at Jack in the Box Inc. (NASDAQ:JACK) and actually falling 2% at Qdoba during the quarter. These results stand in stark contrast to the 5.6% and 3.8% same-store sales growth Jack in the Box Inc. (NASDAQ:JACK) and Qdoba enjoyed last year, respectively.
Unfortunately, the hard times facing fast food chains aren’t limited to the smallest competitors. Industry juggernaut McDonald’s Corporation (NYSE:MCD), which holds a nearly $100 billion market capitalization and operates close to 35,000 restaurants in more than 100 countries worldwide, had a difficult first quarter of its own.
