Restaurant profits may suffer despite stimulus

The markets appear to expect mostly dismal earnings. With many restaurant companies reporting their financial results next week, investors have been selling off shares and driving down stock prices. Shares of at least eight restaurant companies hit new yearly lows earlier this week.

Standard & Poor's restaurant analyst Mark Basham said he expects stronger results from fast-food and other quick-service chains, which benefit from lower prices, convenience and a recent focus on better-quality food. McDonald's Corp., which reports on Wednesday, has been a big beneficiary of the downturn in the economy and is expected to post solid results.

Basham said restaurants with international operations also may be able to offset slower U.S. sales. Yum Brands Inc., the parent company of Taco Bell, KFC and Pizza Hut, said Wednesday that strong sales in its China and international divisions were responsible for a 4 percent rise in overall profit.

Casual dining chains and companies that cater to leisure travelers--another group that has been cutting back on spending as airfares and gas prices rise--could report the worst results, Basham said.

While chains could see slightly higher sales into the third quarter since some taxpayers have yet to receive their stimulus checks, most analysts are being cautious about whether rosier days are ahead for the sector.

"I think the upward trend is going to be hard to predict," said Wedbush Morgan analyst Brian Moore.

Goldin was even less optimistic that a recovery could still take place this year--a prediction heard frequently just a few months ago.

"It's wishful thinking," he said.