Q2 Earnings Season - Less than TOXIC!

I don't want to speak for my colleagues at Research Edge, but yesterday we branded this earnings season as Less than toxic. Ok... In yesterday's morning meeting, our fearless leader used the term less than toxic when referring to AA earnings. The popular press was playing up the fact that they beat the street on lowered expectations, but everything was ok because they beat consensus! What a game this is. Well, see Keith's posted thoughts on how that ended...

So, guess what? We have less than Toxic in the restaurant industry, too. We are only two day's into the earnings season and a pattern is developing. Given the boost to spending that the Bushies gave the consumer in 2Q08, we are not surprised that we are seeing slightly better 2Q EPS.

Unfortunately it's only temporary...

After the close, CPKI guided 2Q08 EPS to $0.25-$0.26 vs. prior guidance of $0.16-$0.17 and consensus estimates of $0.17. The company reported 2Q08 same-store sales of +1.4% vs. year ago 5.4% and consensus of flat same-store sales. But here is the TOXIC part; despite its better-than-expected performance, senior management is not adjusting full year 2008 guidance at this time due to limited sales visibility and an ongoing concern for the economy.

Also after the close, RT reported 4Q08 EPS of $0.27 vs. consensus $0.20. The Company-owned same-store sales: March (10.2%), April (11.6%) and May (9.2%) and franchise comps were: March (8.0%), April (7.8%) and May (5.5%). For fiscal 2009, same-store sales are expected to be down MSD, including a 8-9% decline in 1Q09. It looks like RT will be reducing capacity by opening four new company-owned restaurants and closing 15 company-owned restaurants.

Remember, yesterday RRGB announced that they are going to miss EPS this quarter. Clearly, RRGB had expectations for the impact of advertising set way too high. Beware of those companies that have not completely cleared the decks.