PACIFIC MANAGEMENT CONSULTING GROUP

Lunchtime at the flagship In-N-Out Burger restaurant in Baldwin Park, California, is a study in efficiency. As the order line swells, smiling workers swoop in to operate empty cash registers. Another staffer cleans tables, asking customers if they’re enjoying their hamburger. Outside, a woman armed with a hand-held ordering machine speeds up the drive-through line.

Such service has helped In-N-Out create a rabid fan base — and make Lynsi Torres, the chain’s 30-year-old owner and president, one of the youngest female billionaires on Earth. New store openings often resemble product releases from Apple Inc, with customers lined up hours in advance. City officials plead with the Irvine, California-based company to open restaurants in their municipalities.

“They have done a fantastic job of building and maintaining a kind of cult following,” said Bob Goldin, executive vice president of Chicago-based food industry research firm Technomic Inc. “Someone would love to buy them.”

That someone includes billionaire investor Warren Buffett, who told a group of visiting business students in 2005 that he’d like to own the chain, according to an account of the meeting on the UCLA Anderson School of Management website.

The thrice-married Torres has watched her family expand In-N-Out from a single drive-through hamburger stand founded in 1948 in Baldwin Park by her grandparents, Harry and Esther Snyder, into a fast-food empire worth more than $1 billion, according to the Bloomberg Billionaires Index.

Biblical citations

Famous for its Double-Double cheeseburgers, fresh ingredients and discreet biblical citations on its cups and food wrappers, In-N-Out has almost 280 units in five states.

The closely held company had sales of about $625 million in 2012, after applying a five-year compound annual growth rate of 4.6 per cent to industry trade magazine Nation’s Restaurant News’s 2011 sales estimate of $596 million.

In-N-Out is valued at about $1.1 billion, according to the Bloomberg ranking, based on the average price-to-earnings, enterprise value-to-sales and enterprise value-to-earnings before interest, taxes, depreciation and amortisation multiples of five publicly traded peers: Yum! Brands Inc, Jack in the Box Inc, Wendy’s Co, Sonic Corp and McDonald’s Corp Enterprise value is defined as market capitalisation plus total debt minus cash.

One private equity executive who invests in the food and restaurant industry said the operation could be valued at more than $2 billion, based on its productivity per unit, profitability and potential for expansion. The person asked not to be identified because he is not authorised to speak about his company’s potential investments.

Plane crash

“In-N-Out Burger is a private company and this valuation of the company is nothing more than speculation based on estimates from people with no knowledge of In-N-Out’s financials, which are and always have been private,” Carl Van Fleet, the company’s vice president of planning and development, said in an emailed statement.

Torres, who has never appeared on an international wealth ranking and declined to comment for this article, came to control In-N-Out after several family deaths. When her grandfather Harry died in 1976, his second son, Rich, took over as company president and expanded the chain to 93 restaurants from 18.

Torres’s father, Harry Guy Snyder, became chief executive following Rich’s 1993 death in a plane crash at age 41. The chain expanded to 140 locations under Guy, who inherited his father’s passion for drag racing.

Ford cobra

When he died of a prescription drug overdose at age 49 in 1999, Snyder’s estate included 27 cars and other vehicles, including a 1965 Ford Cobra and a pair of 1960’s-era Dodge Dart muscle cars, according to his will.

Torres’s grandmother Esther — Harry’s widow —maintained control of the company until her death in 2006 at age 86. When she died, Torres was the sole family heir. She now controls the company through a trust that gave her half ownership when she turned 30 last year, and will give her full control when she turns 35. The company has no other owners, according to an Arizona state corporation commission filing.

Few in the restaurant industry have met or know much about the hamburger heiress.

“I have no clue about her,” said Janet Lowder, a Rancho Palos Verdes, California, restaurant consultant, who said she was one of the few people to extract the company’s internal finances from Esther Snyder in the 1980’s for industry-wide surveys. “I was even surprised there was a granddaughter.”

Limited menu

Torres has little formal management training and no college degree. The company was structured to carry on after the demise of its founders, according to a 2003 Harvard Business School case study. In-N-Out has never franchised to outside operators, the Harvard researchers said, giving up a low-cost revenue stream in exchange for maintaining quality control.

In a 2005 article in the Harvard Business Review, Boston- based Bain & Co consultants Mark Gottfredson and Keith Aspinall attributed the company’s estimated 20 per cent profit margins at the time to the simplicity of its limited menu. Contrast that with competitors such as Oak Brook, Illinois-based McDonald’s and Miami-based Burger King Worldwide Inc, which regularly change their food offerings.

“Other chains seem to change positions as often as they change their underwear,” said Bob Sandelman, chief executive officer of San Clemente, California-based food industry researcher Sandelman & Associates.

‘Calculated growth’

Butchers carve fresh beef chuck delivered daily to the company’s distribution facility in Baldwin Park, where hamburger patties leave for restaurants on 18-wheeled refrigerated trucks outfitted with over-sized tires so the In-N-Out logo can be better seen on the highway. The company only expands as far as its trucks can travel in a day, either from the Baldwin Park complex or a newer facility in Dallas, the only two places where the company makes hamburger patties.

In-N-Out expanded to Texas in 2011, after building a warehouse and the patty facility. There are now 16 units in the state. Conrad Lyon, a Los Angeles-based senior restaurants analyst for B Riley Caris, said additional expansion will continue to be gradual.

“I would expect slow, calculated growth,” he said in a phone interview. “To outsiders the company’s growth out West likely appears sluggish. However, it was management carefully leveraging its brand, real estate and distribution. As a private company-owned system, In-N-Out has the luxury of calling the shots to replicate its success without succumbing to potentially detrimental outside influences.”

Complaints, Allegations

The company’s pace of expansion was one of the issues at stake in an exchange of lawsuits in 2006 between Torres, In-N- Out executives and Richard Boyd, the company’s former vice president of real estate and development. Boyd was one of two trustees overseeing the trust that controls the company’s stock on behalf of Torres.

Among other allegations filed in California state court in Los Angeles, Boyd claimed Torres and Mark Taylor — her brother- in-law from a half-sister — conspired to remove Esther Snyder from the company to gain control of In-N-Out. He filed a separate petition with the probate court seeking to prevent Torres from removing him as a trustee.

Torres denied the allegations in both a formal answer to Boyd’s complaint and a 2006 letter to the editor published in the Los Angeles Times, in which she said she only had “minimal involvement” in the company’s business decisions, and didn’t favour rapid expansion.

16 Bathrooms

The company in turn filed a breach of contract lawsuit against Boyd, alleging fraud and embezzlement in connection to Boyd’s relationship to one of In-N-Out’s outside construction firms. Boyd’s lawyer, Philip Heller of Fagelbaum & Heller LLP in Los Angeles, said all the litigation was dismissed following a confidential settlement. Boyd resigned from the company and the trust.

“They were all in the end amicably resolved,” Heller said.

Since then, Torres has refused most interview requests, even by author Stacy Perman, who wrote a 352-page book about In- N-Out in 2009. Torres asked to set up a meeting with the author after the book’s publication, but it never occurred, Perman wrote in an afterword to the 2010 paperback edition.

Torres popped up in real-estate blogs in September, after buying a $17.4 million, 16,600-square-foot mansion in the wealthy enclave of Bradbury, California, in the foothills of the San Gabriel Mountains. A Realtor.com listing for the house described it as having seven bedrooms, 16 bathrooms, a pool, a tennis court and other amenities.

Drag Racing

Torres is one of almost 90 hidden billionaires discovered by Bloomberg News since the debut of the Bloomberg Billionaires Index in March 2012. Among them: Dirce Camargo, the richest woman in Brazil, and Elaine Marshall, the fourth-richest woman in America.

Like Camargo and Marshall, Torres maintains a low profile. Her most visible presence has been on the drag strip. She competes in the National Hot Rod Association’s Super Gas and Top Sportsman Division 7 categories, alternating between a 1970 Plymouth Barracuda and a 1984 Chevrolet Camaro, according to NHRA results. Her third husband, Val Torres Jr., is also a race- car driver.

Whether the mother of twins will maintain ownership in the chain after she gains full control in five years is uncertain, said John Gordon, founder of San Diego-based restaurant consultant Pacific Management Consulting Group.

“It’s an open question whether she may have different feelings later,” said Gordon. “Like most kids, or second or third generations of a very wealthy family, I don’t know that she has restaurant blood in her veins, or if she’s a trust fund baby.”

McDonald’s Corp. is adding pumpkin-spice lattes to lure the Starbucks crowd and boost traffic.

The McCafe pumpkin latte — a mix of espresso, milk and flavored syrup — will come in three sizes and be available with whole or nonfat milk, the Oak Brook, Ill.-based company said. A 16-ounce latte with whole milk has 340 calories and will cost $2.89. A regular coffee is $1. The lattes are being introduced this month and will sell through mid-November.

McDonald’s, the world’s largest restaurant chain, has been introducing pricier items such as chicken wings, McWraps and steak breakfast sandwiches to maintain profitability in the face of higher labor, occupancy and operating costs. At the same time, the company is expanding its value menu to draw bargain-seeking diners.

The operating margin at McDonald’s U.S. company-owned restaurants narrowed to 18.7 percent in the quarter ended June 30 from 19.8 percent a year earlier.

The shares rose 0.4 percent to $97.28 at the close in New York Sept. 23. McDonald’s has advanced 10 percent this year, while the Standard & Poor’s 500 Restaurants Index has gained 18 percent. Starbucks has added 41 percent.

Starbucks Corp. has sold 200 million pumpkin spice lattes in the nine years since it introduced them, said Alisa Martinez, a company spokeswoman. The drink has the same number of calories as McDonald’s offering and a 16-ounce one sells for $4.55, on average. The Seattle-based company, which has about 11,200 U.S. cafes, also sells salted-caramel mochas, hazelnut lattes and is introducing new bakery items nationwide.

McDonald’s may be able to steal some Starbucks customers because Americans are focused on finding deals now and pumpkin has become such a popular flavor during the fall season in the U.S., John Gordon, principal at San Diego-based Pacific Management Consulting Group and adviser to restaurant franchisees, said.

McDonald’s also will begin serving hot beverages in paper cups, instead of polystyrene foam containers, bowing to customers’ preference for a recyclable option, Ofelia Casillas, a spokeswoman, said. Changing all 14,100 U.S. locations to paper will be a “multi-year” process, she said.

McDonald’s has recently struggled in the United States, where it is facing a tough consumer environment. In August, sales at stores open at least 13 months rose 0.2 percent domestically, falling short of the 0.8 percent gain projected by analysts. Earnings have trailed estimates for the past two quarters.

The fast-food company’s new Dollar Menu, which it’s testing in five markets in the U.S., includes items that sell for as much as $5. McDonald’s Dollar Menu was introduced in 2002 and it rolled out the McCafe lineup of lattes, cappuccinos and mochas to the U.S. in 2009.

McDonald’s is scheduled to report third-quarter results Oct. 21.

McDonald’s Corp., already struggling to sell burgers in the U.S., now must contend with a brewing franchisee revolt.

Store operators say the company, looking to improve its bottom line, is increasingly charging them too much to operate their restaurants — including rent, remodeling and fees for training and software. The rising costs are making franchisees, who operate almost 90 percent of the chain’s more than 14,100 U.S. locations, less likely to open new restaurants and refurbish them, potentially constraining sales.

McDonald’s is “doing everything they can to shift costs to operators,” said Kathryn Slater-Carter, who in June joined other franchisees in Stockton, California, to brainstorm ways of getting the chain to lessen the cost burden. “Putting too much focus on Wall Street is not a good thing in the long run.

‘‘It is not as profitable a business as it used to be,’’ said Slater-Carter, who owns two McDonald’s stores and backs California legislation that would require good faith and fair dealing between parties in a franchise contract. It would also allow franchisees to associate freely with fellow store owners.

Asked if McDonald’s is shifting costs to franchisees, Heather Oldani, a spokeswoman, said in an e-mail: ‘‘We are continuing to work together with McDonald’s owner/operators and our supplier partners to ensure that our restaurants are providing a great experience to our customers, which involves investments in training and technology.”

‘Productive’ Meetings

Lee Heriaud, who chairs the National Leadership Council, a group of franchisees that meet regularly with company executives to discuss ideas and concerns, attended the Stockton meeting and others. In an e-mailed statement provided by Oldani, he said “owner/operators’ feedback and perspectives have been shared with McDonald’s and owner/operator leadership in the spirit of open dialogue.” The meetings were “productive,” he said.

Cooperation between McDonald’s and its store owners is deteriorating, according to an April 11 letter from a franchisee to other store owners reviewed by Bloomberg News.

“Many of you have said that you don’t feel that the top management understands the economic pressures that we face,” the letter said. “The tone has become much more controlling and less inclusive.”

This isn’t the first time the world’s largest restaurant company has found itself at odds with the people who own and operate its stores. McDonald’s in the mid-90s alienated U.S. franchisees when it expanded too quickly and new stores began cannibalizing other locations, said Dick Adams, a former McDonald’s store owner and restaurant consultant in San Diego.

Slowed Expansion

Under pressure from franchisees, the company slowed the expansion. It opened 1,130 net new domestic restaurants in 1995; by 1998, it had cut that number to 92.

“There was a time at McDonald’s when the franchisee morale was extremely low and everyone was extremely upset,” Adams said. “We’re getting there again.”

Today’s tensions between Oak Brook, Illinois-based McDonald’s and store operators coincide with the company’s struggles to grow after consumer confidence fell in July after increasing for the past three months and with the unemployment rate stalled at 7.4 percent or higher. On July 22, the shares fell 2.7 percent, the most in nine months, when McDonald’s reported second-quarter profit and revenue that trailed analysts’ estimates. Chief Executive Officer Don Thompson said economic weakness would hurt results for the rest of the year.

McDonald’s fell 0.2 percent to $99.11 at 9:37 a.m. in New York. The shares increased 13 percent this year through yesterday, trailing the 20 percent gain for the Standard & Poor’s 500 Restaurants Index.

Franchisee Income

The Big Mac seller, which owns or leases most of its U.S. stores, has been generating more income from franchisees. Revenue from franchised stores, which includes rent and royalties, increased 8 percent on average during the past five years, while total revenue rose 4 percent.

Some franchisees are paying as much as 12 percent of store sales in rent, according to notes of an April 23 meeting attended by store operators. Instead, they want the company to return to a historic rate of about 8.5 percent, the document shows.

U.S. McDonald’s restaurants average about $2.5 million in annual sales, according to Chicago-based researcher Technomic Inc. That means franchisees who have recently renewed leases are paying an average of $300,000 a year, up from $212,500 at the 8.5 percent rate.

Local Markets

“Across the country, the rent owner/operators pay for their McDonald’s restaurants is determined by local market real estate costs, as well as the cost of doing business in a particular market,” Ofelia Casillas, a McDonald’s spokeswoman, said in an e-mailed statement. “The range for rent has historically varied based on these and other regular business variables.”

At the April meeting at a community center in Paramount, California, a group of franchisees spent five hours discussing ways to get the company to reduce rents and other costs. Another cadre of McDonald’s store owners met in Stockton in June to discuss similar issues. The group in Paramount suggested reducing rents, royalty rates and creating a regional real- estate team of store owners to help set lease rates.

Rent is “the firmest of fixed expenses,” said John Gordon, principal at San Diego-based Pacific Management Consulting Group and a consultant to restaurant franchisees. “You pay that before you remodel, you pay that before you take owner salary out.”

Alienating Customers

As a result, some run-down stores aren’t getting fixed up, which in turn is alienating customers, he said.

“People don’t want to be in an old space, even if they’re going through the drive-thru,” Gordon said. “You get better employees, you just get a better vibe if it’s a newer store.”

As it is, remodeling a McDonald’s store costs at least $800,000, according to Slater-Carter. That’s more than twice as much as at Burger King Worldwide Inc., which after franchisees revolted cut the expense for its remodeling program by half to about $300,000, on average. Wendy’s Co. is also paring its upgrade costs and has said it will get to $375,000 for its least-expensive model.

Oldani, the McDonald’s spokeswoman, said that it costs about $600,000, on average, to remodel a McDonald’s restaurant and $1 million to build a new store.

McDonald’s recently told franchisee Slater-Carter she must pay $80 a year to switch to the company’s e-mail system and she’s now forking over an extra $10,400 per store annually for new software, Wi-Fi and employee training costs — all fees that McDonald’s has tacked on in the last five years. She won’t know until 2016, when her lease must be renewed, how much extra she may be paying in rent.

“What I see going wrong is the corporation itself is forgetting that its fiscal strength rides on the fiscal strength and the creativity of the operators, and it’s just going for such centralized control,” said Slater-Carter, whose family has owned McDonald’s franchises since 1971.

Following the biggest surge in takeovers of restaurant and coffee companies since the last recession, Krispy Kreme Doughnuts Inc. (KKD) and Jamba Inc. could be next on the menu.

Acquisitions of U.S. restaurant, tea and coffee companies from Peet’s Coffee & Tea Inc. to Teavana Holdings Inc. reached $6.1 billion last year, the highest level since 2008, according to data compiled by Bloomberg. Deals are on the rise as sales growth at coffee and snack shops are forecast to outpace fast- food chains through 2017, data from IBISWorld Inc. show. Since Joh. A. Benckiser Group announced plans Dec. 17 to buy Caribou Coffee Co., Krispy Kreme shares have climbed 21 percent to the highest in more than five years as Jamba rose 19 percent.

Krispy Kreme, which introduced a new coffee lineup in 2011, and Jamba (JMBA), the smoothie maker projected to post its first profit since 2005 this year, may be targeted for their well-known brand names and the chance to expand into grocery and mass retail stores, said B. Riley & Co. and Pacific Management Consulting Group. Even after Krispy Kreme shares climbed 43 percent in a year, the doughnut seller still trades at a lower earnings multiple than 97 percent of U.S. restaurants valued at more than $100 million, data compiled by Bloomberg show.

“They’re iconic brands and it takes forever to build that brand equity,” Conrad Lyon, an analyst at Los Angeles-based B. Riley, said in a telephone interview. “To be able to write a check and add that to your portfolio is probably pretty attractive.”

Takeover Wave

Brian Little, a spokesman for Winston-Salem, North Carolina-based Krispy Kreme, and Matt Lindberg, a spokesman for Emeryville, California-based Jamba, declined to comment on takeover speculation.

In addition to its pending $340 million purchase of Caribou, Benckiser also acquired Peet’s last year for about $1 billion. Starbucks (SBUX) Corp.’s approximately $620 million takeover of Teavana was disclosed in November and completed last week.

Those acquisitions helped push industry takeovers last year to the highest since 2008, when deals peaked at $7.5 billion before consumers curbed spending amid the longest U.S. recession since the Great Depression, data compiled by Bloomberg show.

Sales at coffee, hot-beverage and doughnut chains are outpacing fast-food revenue as on-the-go consumers shift to snacks instead of full restaurant meals, according to June and July reports from IBISWorld. Coffee and snack shop sales are forecast to increase 4 percent annually to $33.9 billion in 2017, compared with growth of 1.9 percent a year for fast-food chains, the Santa Monica, California-based researcher said.

Jamba Juice

Acquirers may be interested in a coffee or beverage chain with a brand that is “strong in the consumer mind,” Lyon at B. Riley said. The profit margin for selling beverages is higher than for food, he said.

“Two brands out there that are largely the strongest in their category are Krispy Kreme for doughnuts and Jamba for smoothies,” Lyon said.

Jamba, operator of the Jamba Juice chain, sells hummus-and- cheese wraps, flatbreads and frozen yogurt alongside its signature fruit smoothies. The juice maker, founded in 1990, also sells smoothie kits and 90-calorie energy drinks at Wal- Mart Stores Inc. and Target Corp. (TGT) locations in the U.S.

While Jamba shares rose 71 percent last year as the company announced new store openings and started selling more food, the closing price of $2.48 last week was still 80 percent below its 2006 peak. The company has a market value of $192 million.

Starbucks Interest

“Jamba juice could be pick-up-able,” said John Gordon, a San Diego-based principal at restaurant adviser Pacific Management Consulting, with clients including Dunkin’ Donuts franchisees. “It would be relatively cheap from a strategic acquisition standpoint. They already have a very large store presence. It’s already a brand name.”

The company could fetch about a 15 percent premium in a sale, Gordon estimated.

Jamba is projected to post a profit of $7.3 million this year following losses since 2005, analyst estimates compiled by Bloomberg show. After three consecutive years of declining sales, the company also may report revenue gains of 2 percent for 2012 and 6.3 percent this year, the estimates show.

Starbucks may seek to buy Jamba if its Evolution Fresh juice brand, purchased in 2011 for $30 million, doesn’t catch on fast enough, said Lyon. There are four Evolution Fresh shops that sell items including spiced carrot juice, mango smoothies and eggs scrambled with brown wild rice. Jamba has about 755 stores in the U.S., of which 301 are company owned, according to the company’s November earnings statement.

Breakfast Foods

“It’s maybe a great opportunity for Starbucks if they really want to get into that smoothie business and juice business more,” he said.

Zack Hutson, a spokesman for Seattle-based Starbucks, declined to comment on whether it’s interested in buying Jamba.

Krispy Kreme, founded in 1937, may lure bids from other eateries looking to boost morning food and drinks sales with its cult-like following, Lyon said.

Wendy’s Co. (WEN) may look at Krispy Kreme as a way to boost its breakfast sales, Lyon said. The Dublin, Ohio-based chain, which sells chicken biscuits and home-style potatoes at some locations, has struggled to compete with McDonald’s Corp.’s morning menu. The $1.86 billion company backed off testing breakfast in some U.S. markets last year after a disappointing financial performance.

Coffee Appeal

“Most fast-food restaurants in the burger category have a huge opportunity in the breakfast arena,” Lyon said. Krispy Kreme is a “great way to expose customers to products in the morning — and then later in the afternoon, the burgers take over.”

Bob Bertini, a spokesman for Wendy’s, said the company doesn’t comment on speculation.

Krispy Kreme, which began selling a new line of “signature” coffees in 2011, has said it plans to increase coffee to about 12 percent of sales by the end of fiscal 2015. Coffee currently accounts for about 4 percent of sales, the company said in August.

Part of the allure of purchasing coffee companies now is that coffee-bean prices have been falling, Sharon Zackfia, an analyst at William Blair & Co. in Chicago, said in a phone interview. Coffee prices dropped 37 percent in 2012, the biggest annual decrease since 2000, according to data compiled by Bloomberg.

Profit Return

Krispy Kreme returned to profit in fiscal 2011 after six straight years of losses, data compiled by Bloomberg show. Earnings for the third quarter topped analysts’ estimates, and the company said that in the fiscal year ending Jan. 31 it will earn more than previously thought. Krispy Kreme has a net cash position of $24 million, the data show.

“It’s still a very recognized brand,” Gary Bradshaw, a Dallas-based money manager at Hodges Capital Management Inc., which oversees about $800 million including Krispy Kreme shares, said in a phone interview. “The company has returned to profitability. They really cleaned up their balance sheet. It could certainly be bought.”

While the improvements sparked a 48 percent stock gain since the Nov. 19 earnings report, Krispy Kreme still trades for 5 times its trailing 12-month profit. That’s a lower price- earnings ratio than 97 percent of U.S. restaurants larger than $100 million, the data show. Only Denny’s Corp. (DENN) is cheaper at 4.5 times.

Doughnut Calories

“It’s not dirt cheap, but it’s an improving picture that we think will continue to get better,” Bradshaw said. “There’s not a lot you can do if someone comes in and offers $15 a share for the company, but we think if they continue to grow, it could be worth a lot more than that a couple of years out.”

Krispy Kreme shares rose almost 11 percent to $11.15 on Jan. 4, giving the company a market value of $727 million, after Alton Stump, an analyst at Longbow Research, initiated coverage with a buy rating and $15 stock price estimate.

Still, the iconic doughnut’s nutritional drawbacks may give a possible buyer pause, said Jason Moser, an Alexandria, Virginia-based analyst at the Motley Fool. A glazed doughnut with creme filling has 350 calories, according to the company’s website. That’s why Krispy Kreme has recently introduced oatmeal and fruit juice to its menu.

While Nick Setyan, a Los Angeles-based analyst at Wedbush Inc., says strategic buyers may be lacking for Krispy Kreme, he also said the company is a potential buyout candidate for a private-equity firm at as much as $13 a share. That would be a 17 percent premium.

“You can capture the future growth at this point,” Setyan said. “A lot of the sort of bad news is behind them now.”

Rivals are bringing the burger wars home to McDonald’s.

The world’s biggest hamburger chain posted its first monthly sales decline in nearly a decade as reinvigorated fast-food rivals fight back.

After years of battling each other for second place as they struggled to keep up with McDonald’s, Wendy’s and Burger King are starting to steal market share, analysts said.

With the backing of hedge-fund investors, both chains have undergone transformations in recent months that include revamping their menus, remodeling their stores and honing their marketing.

McDonald’s yesterday said October same-store sales in the US fell 2.2 percent, even more than the global 1.8 percent decline. It marked the first monthly decline since 2003.

The news sent the shares down nearly 2 percent, to $85.13.

“It seems both Wendy’s and Burger King are taking share,” said Sara Senatore, a senior analyst at Sanford C. Bernstein & Co.

Wendy’s, controlled by buyout kingpin Nelson Peltz, is quickly moving to higher price points and premium products, an effort that is paying off with sales gains.

Last quarter, Wendy’s dropped its low-price W Burger so customers would buy more expensive items such as the Bacon Portabella Melt and the Asiago Ranch chicken sandwich.

Yesterday, the chain reported a 2.7 percent increase in same-store sales in the latest quarter, its sixth straight quarter of gains.

Wendy’s CEO Emil Brolick, who came on board about a year ago, is making over the chain. The idea is to compete directly against Five Guys as Wendy’s remodels its stores, which still look like they did in the late 1970s.

Franchisees need to decide if they are willing to invest in the expensive renovations, according to Pacific Management Consulting Group Principal John Gordon.

Wendy’s also plans to push forward with a breakfast menu — a new offering for the chain.

Burger King’s launch of salads, wraps and smoothies helped boost sales, Santore said.

Burger King’s largest franchisee, Carolls Restaurant Group, last week reported same-store sales for the quarter jumped 6.2 percent.

The chain has started to invest again in the brand after going public in April. The moves follow an effort by Burger King’s hedge-fund owners to turn it around after it had languished for years with crippling debt. Bill Ackman, founder of hedge fund Pershing Square Capital Management, also took a 10 percent stake.

Meanwhile, McDonald’s has been shifting to lower price points and pushing its dollar menu, in an attempt to boost same-store sales.

It’s a big change from just last year. In 2011, McDonald’s saw a 5 percent rise in US store sales, Wendy’s grew 2 percent and Burger King fell 3 percent.

“I do see the risk to McDonald’s” as both competing chains get stronger and start to differentiate their offerings, Gordon said.

Dunkin’ Brands may take on more debt to buy back shares from its private-equity backers, including Bain Capital.

“The most likely use of cash would be a share repurchase, not a public float,” Dunkin’ CFO Neil Moses said yesterday said at a Morgan Stanley investor conference. “It might take the form of a share repurchase from our private-equity owners.”

Moses said the buyback would increase the company’s debt to more than five times earnings before interest, taxes, depreciation and amortization, or Ebidta, up from 4.2 times now.

By that calculation, the company would be taking on somewhere in the range of $200 million to $350 million in additional debt.

Dunkin’s PE owners — Bain, Carlyle Group and THL Partners — took the company public less than a year ago. Six of Dunkin’s 10 directors are from the PE firms.

The share repurchase would likely cut the PE firms’ combined equity stake from 30 percent to roughly 20 percent.

The move could be more fodder for attacks on the private-equity industry. Critics say the firms take money out in the form of dividends and buybacks, while saddling companies with burdensome debt.

Dunkin’ shares, whose shares are up 72 percent since it went public, rose 1.5 percent yesterday to close at $32.62.

“The risk to Dunkin’ shareholders is that Dunkin’ might not have the money to back up international growth” as planned, said John Gordon, a restaurant consultant from Pacific Management Consulting.

McDonald’s, a darling of Wall Street over the past couple of years, could be looking at some less tasty returns in 2012, according to a report yesterday.

The fast-food chain, whose shares have come under pressure of late, could see its results — and share price — constrained for the rest of 2012 because of a weaker economy, said the report, from Sanford C. Bernstein.

The burger-and-fries joint will also see its balance sheet take a hit because it will be forced to maintain, and possibly expand, its value menu because rival Burger King has discovered value pricing.

McDonald’s CEO-elect, Don Thompson, met analysts in person for the first time late this week and said he would be stepping up its value-oriented menus (Dollar Menu and Extra Value Menu), said the report.

McDonald’s generally does not go out and provide guidance, but “this is part of Don’s strategy of getting out and building some relationships,” said Pacific Management Consulting analyst John Gordon.

Thompson noted some US softness in April and part of May where he said it would continue its focus on value products.

Angus/Premium-Chicken offerings and some McCafé product sales were weak, Thompson said.

Competitors are typically unable to sustain excessive levels of promotion, Thompson said, and added that he looked forward to grabbing market share when they pulled back from promotions, the report said.

“This [meeting] is a signal to manage expectations down,” Gordon said.

McDonald’s shares fell 2.9 percent yesterday to $86.71. Shares are down more than 15 percent from a $102 peak in January.

Concerns on Wall Street over restaurant industry health, recently fueled by a sales miss from McDonald’s, may be to blame for CKE Restaurants’ decision to postpone its initial public offering, according to various sources.

The planned IPO that was set to begin trading on Friday was called off late Thursday “due to market conditions,” CKE said.

The Carpinteria, Calif.-based company operates or franchises 3,263 restaurants under the Carl’s Jr. and Hardee’s brand names. The company had hoped to raise more than $200 million with an offering of 13.3 million shares of common stock priced between $14 and $16 per share.

A report on Thursday by the International Franchising Review, an online publication of Thomson Reuters Capital Markets Publishing, said CKE owner Apollo Management turned down an offer presented by the underwriting banks because it was too low.

According to the report, which did not name sources, the offer by joint underwriters Morgan Stanley, Citigroup and Goldman Sachs was believed to be $10 per share. Earlier, the banks had communicated investor interest in the $10 to $11 range.

Two days before CKE’s IPO was scheduled, Outback Steakhouse parent Bloomin’ Brands Inc. went to market with stock priced at $11 — well below the previous target of $13 to $15 per share. The size of the offering was also reduced to 16 million from the 21 million initially stated, and, though the stock price climbed through the week, some saw the situation as an indicator that investor interest in the restaurant space was cooling.

“For it to be priced below [the target range] and for it to be undersubscribed, that tells you a lot about that market,” said Conrad Lyon, securities analyst with B. Riley & Co. in Los Angeles. “The appetite probably just wasn’t there.”

Observers disagree, however, about the “market conditions” that might be scaring investors off.

On the same day as Bloomin’ Brands’ IPO, McDonald’s reported that its global samestore sales in July were not positive for the first time in years. The quick-service leader reported that same-store sales fell 0.1 percent among U.S. locations, 0.6 percent in Europe and 1.5 percent in Asia Pacific, Middle East and Africa.

Analysts blamed weakness in the global economy but also stiffer competition from competitors like Wendy’s, Burger King and Taco Bell, all of which have shown improving results.

Concerns about beef prices next year may also have been a factor in the postponement of CKE, according to International Franchising Review.

In earnings reports in recent weeks, several public companies said ground beef prices were expected to be favorable for the rest of this year as cattle are sent to slaughter because they are becoming too expensive to feed with the drought in the Midwest putting increasing pressure on corn prices. The long-term result, however, will be even higher beef prices next year, as it takes time to rebuild herd counts.

Others said investors may simply have had enough of restaurant IPOs after a busy year so far. “The client base only has so many bullets to shoot at restaurant investments, and those bullets have been fired already,” said Lyon.

CKE’s planned IPO would have been the fifth this year, following those from Bloomin’ Brands, Chuy’s Holdings Inc., Del Frisco’s Restaurant Group and Ignite Restaurant Group.

Dunkin’ Brands Group Inc. also on Friday announced a secondary offering of 21.7 million shares by stockholders. Last year, Dunkin netted about $423 million with an IPO, selling 22.25 million shares for $19 per share, which was higher than the range initially set at $16 to $18 per share.

John Gordon, principal of Pacific Management Consulting Group, said CKE’s large debt load may also have scared off potential investors. CKE was acquired in 2010 by Apollo Management in a $700 million deal. The company was planning to use income from the IPO in part to reduce net debt of $654 million to a projected $590 million.

Since going private, Carl’s Jr. and Hardee’s have not been able to show strong signs of turnaround, as competitors Wendy’s, Burger King and Taco Bell have shown. CKE’s blended same-store sales rose 2.6 percent in the first quarter, which was “okay, nothing exciting,” Gordon said.

CKE has a growth story to tell, Gordon noted, with plans to grow overseas and into the as-yet underpenetrated Northeast. However, those factors were not enough to overcome the changing outlook for restaurant stocks, which looks very different today than it did in May, when CKE first announced its IPO plans.

“There’s no doubt things are looking worse now than they were in the spring,” he said.

However, he added, investor outlooks are cyclical. “Investor sentiments tend to bounce back and forth between quick service and casual dining,” said Gordon. “And when the economy softens, investors start favoring QSR again.”

The question remains when, if at all, the IPO may still happen, if market conditions improve. Company officials said they could not comment on potential timing.

The planned IPO was based on first-quarter numbers, and the company will likely have to re-file based on second-quarter results, which won’t be released until mid to late September.

Chuy’s Holdings Inc.. the casual-dining Mexican restaurant operator, debuted on the public market Tuesday, bucking a down market to close up 15.9 percent.

The 36-unit Austin. Texas-based company offered 5.8 mf Ron shares at $13 each, the top end of its forecasted price offering between $11 and $13 per share. The stock closed Tuesday at $15 06, boding well for upcoming restaurant Public stock offerings, including Southlake. Texas-based Del Frisco ’s Restaurant Group, which is scheduled to debut on the market Friday.

In comparison to Chuy’s first-day spike Tuesday, the Dow fell 08 percent and Nasdaq fell 0.9 percent. Wall Street darlings Me Chipotle and McDonald’s were also hit hard by investors as the companies reported depressed sales and earnings news.

Proceeds from Chuy’s offering will be used to pay down debt and add new restaurants Steve Hislop, chief executive of Chuy’s, said in an interview with Nation’s Restaurant News after the chain debuted on the Nasdaq market.

Restaurants take to Walt Street

With Wall Street headed into the doldrums of August John A Gordon, principal of Pacific Management Consulting Group, said companies wanting to go public try to squeeze in public offerings ’before the usual summer street slowdown.”

Gordon cited Bain Capital, in the news now as presumptive GOP presidential candidate Mitt Romney’s former company, as doing its lPOs in late July, “The real market slowdown now couldn’t be anticipated 120 days ago, Gordon said in an email “so its all about the vacation break.

Market-wide, five IPOs went Lip last week and eight are scheduled this week, including two restaurant companies – Chuy’s Holdings and Del Frisco’s Restaurant Group

Del Frisco’s, which operates the Double Eagle Steak House brand as well as the Sullivan’s Steakhouse and the newer Del Frisco’s Grille, said it plans to sell 7 million shares at between $14 and $16 per share. Del Frisco’s plans to offer 4.3 million snares and parent company LSF5 Wagon Holdings LLC. which is owned by Lone Star Funds, will offer 2, 7 million shares.

The company, which tried to go public in 2007 but withdrew its application in December 2008, again tiled for an IPO of up to $100 million in January this year.

Other public offerings in the wings are those from Outback Steakhouse parent OSI Restaurants of Tampa, Fla,, which said in April that it will change its name to Bloomin’ Brands and seek a $345 million IPO. Cheddar’s Casual CafØ of Irving, Texas, which used a provision under the Jumpstart Our Business Startups Act to tile confidentially for its IPO in May, is also on the blocks. Dallas based Dave & Buster’s Entertainment Inc. filed for an IPO in 2011, but it has yet to come to market

CKE Inc., which operates the Carl’s Jr. and Hardee’s burger chains, had tiled for an initial public offering of up to $100 million in May and on Monday said it now expects to raise as much as $230 million. CKE was taken private by Apollo Management in a $700 million deal in 2010.

Shares in Ignite Restaurant Group of Houston, which owns the 127-unit Joe’s Crab Shack and the 16 unit Brick House Tavern + Tap, went public in a $83.8 million offering in May. The company’s stock lost more than 20 percent of its value last week when the company announced it would have to restate financial statements for 2009 to 2011, and the first quarter of 2012, because of accounting issues with fixed assets and depreciation expenses.

Chuy’s future as a public company

The casual-dining chain most recently opened a unit in Gainesville. Fla., and is looking to back fill markets in Texas and Oklahoma, as well to colonize new ones such as Atlanta, Birmingham, Ala., and Louisville, Ky.

Hislop said the company, founded in Austin in 1, 982, expects future units to follow the non-cookie-cutter approach “We’re going to follow our motto of ’If you’ve seen one Chuy’s, you’ve seen one Chuy’s, Hislop said.

Current units range from 7,000 to 12.000 square feet, and Hislop said the lower end is likely to be the target for future development

The chain’s menu of burritos, enchiladas and fajitas produces a per person check average of $12.99, Hislop said, “which makes us very affordable “The concept’s emphasis on rock n roil music and instore Elvis altars also positions Chuy’s differently than many Tex-Mex operations, Hislop said.

With two recent planned initial public offerings being pulled back, the IPO market in the restaurant industry shows signs of cooling down.

Dallas-based Dave & Busters Entertainment Inc. on Thursday announced It was not proceeding with Its IPO scheduled for Friday, citing “continued volatility for new issuers in the equity market.” That followed CKE Restaurants’ decision in August to postpone its planned IPO.

“While we received significant interest from potential investors, current market conditions are not optimal for an IPO at this time,” said Steve King, Dave & Buster’s chief executive, in a statement. A representative said Friday the company would not comment further.

The operator of 60 restaurant-arcade locations originally filed IPO plans in July 2011. In September, the company said it expected an offering of 7.69 million shares to price between $12 and $14a share, or between $92.2 million and $107.7 million.

Carpinteria, Calif-based CKE, which operates and franchises 3,263 restaurants under the Carl’s Jr. and Hardee’s brand names, had hoped to raise more than $200 million with an offering of 13.3 million shares of common stock priced between $14 and $16 per share.

“There was a pent-up demand for restaurant IPOs earlier this year,” said John A. Gordon, principal at Pacific Management Consulting Group, on Friday.

Three IPO debuts have been successful: Austin, Texas-based Chuy’s Holdings Inc.; Southiake, Texas-based Del Frisco’s Restaurant Group; and Tampa, Fla.-based Bloomin’ Brands Inc. Less successful was Houston-based Ignite Restaurant Group’s offering, which has become mired in accounting problems.

“With CKE and Dave & Buster’s going down in flames, and the problems with Ignite’s accounting, the market is going Co react,” said Gordon. “It is going to cool things off.”

Unless a brand has particular strengths in the market, Gordon said, the likelihood of successful offerings has grown slimmer. “The perceived ’easy’ IPOs are going to have to go back into the oven,” he said. “The numbers are going to have to look better.”

Dave & Buster’s had swung to a profit of $687,000 in the second quarter ended July 29, from a loss of $3.1 million In the same quarter a year ago. Latest-quarter revenue increased 15 percent to $147.9 million in the second quarter compared with $128.7 million a year ago.

King said in a September conference call with analysts that newer stores in Braintree, Mass.; Nashville, Tenn.; Oklahoma City, Okla.; and Orlando, Fla., helped boost the most recent quarter’s revenues. “I’m especially excited about Oklahoma City,” said King, adding that it’s the first of the new 25,000- square-foot format stores.

Prior to the Oklahoma City store, the chain’s small-store format had been in the range of 15,000 to 17,000 square feet, he explained. “It’s very clear to us at this point that a 25,000-square-foot store is much more able to accommodate the volume that we see and the peak loads that we see in our business,” King said in the call.

Gordon said he was surprised that Dave & Buster’s in its Securities and Exchange Commission S-i filings and road show didn’t address international growth.

“There’s only so many 30,000 or 40,000-square-foot sites in the United States that they need,” Gordon said. “When I looked at the [S-i and other comments and I really feel they made the mistake of talking about growth in the United States. What about international? The United States is so crowded with restaurants. … They need to have great sites.”

In addition, Dave & Buster’s $400 million debt load raised investor eyebrows, Gordon said, adding that the current and prior private-equity owners “had each run a dividend through and added to the debt.”

“These are two lPOs in a row, both private-equity with high debt and fast public-market turnarounds. Maybe it just takes more time to fix these companies up,” Gordon said. “It just seems as if the market sees it as too fast of a flip.

Dave & Buster’s owns and operates stores in 25 states and Canada.

While the economies of its international growth markets, especially China, may be slowing down, Yum! Brands Inc. is going to market in the United States with new product news that may bolster the domestic portions of its earnings, which the company will report next Wednesday.

During the past several weeks, the company’s three brands — KFC, Taco Bell and Pizza Hut — have each rolled out new products that star in comprehensive marketing campaigns. The wave of menu innovation comes at a time when economists fear international markets, which generate 65 percent of Yum’s operating profit, could falter from recently reliable and robust growth.

China, Yum’s key market, could be a particular concern. An Associated Press story reported Thursday that the country’s economy might only grow an expected 7.3 percent. While it would be an enviable figure for the United States economy, a growth rate below 8 percent would mark one of the lowest quarterly expansions in several years and signal weakening demand and consumer confidence.

Austerity measures, a possible banking crisis and depressed consumer confidence also could hamper Yum’s outlook in its Yum Restaurants International division.

If Yum were to look to the United States to make up some of the sales slack, recent performance and new products could be reason for optimism. After same-store sales for its domestic system fell 1 percent for fiscal 2011, they rebounded with a 5- percent increase in the first quarter of 2012.

John Gordon, principal of San Diego-based Pacific Management Consulting Group, an analysis and advisory firm focused on restaurant chains, said Yum should be able to win back sales and trial with its new offerings, provided the company makes up for lost time in the United States and stays aggressive in its advertising.

“I don’t understand why their new-product development has been so slow in the United States,” he noted. “This business is fundamentally driven by new-product news. … I’m impressed they have this new news rolling ahead, but they’ve got to sustain that and have to support it with good media. You need to bang on that drum for at least a year to get people’s involvement with the products up.”

Take a look at some the most recent menu rollouts from KFC, Taco Bell and Pizza Hut, as well as analysis of how the offerings could affect Yum’s performance.

KFC: Original Recipe Bites

This week, KFC introduced Original Recipe Bites, a more portable, bite-size version of its chicken prepared with the same 11 herbs and spices of its original recipe. The item is available a la carte or in combo meals with either six or 10 pieces. The chain faces competition for chicken items at snack time not only from Chick-fil-A and Popeyes, but also from McDonald’s and Burger King, which currently are selling a Spicy McBites popcorn chicken item and Chicken Strips as part of a new menu, respectively. Gordon noted that the bite-size snack might be a defensive or reactionary play given that landscape, but the item leverages the strength of KFC’s recipe and still is on trend with how customers snack today. “I think the bites could be a nice transition point so that KFC takes some of the focus off of big chicken-onthe-bone items and can broaden its appeal,” he said. “They have to be a little careful with a combo at an introductory price of $3.99 because that begins to set expectations with what it should be priced at going forward.” One concern Gordon has — and which he said a friend who manages 45 franchised KFC locations shares — is that KFC did not include a large option for the Original Recipe Bites that could compete with a 20-piece order of McDonald’s Chicken McNuggets. “Why wouldn’t they have a 20-piece or larger order?” Gordon said. “This is something KFC could have done ages ago, so why did this take so long? Why wasn’t there a larger portion size sold in order to complement the larger purchases for families or groups that KFC was intended for?”

Pizza Hut: P’zolo and $10 Dinner Box

Yum’s Pizza Hut brand has been extremely prolific the past 12 months with new products, either in the form of a new bundle like the $10 Dinner Box or a new item like the P’zolo, a sandwich platform similar to its P’zone calzones. Initial consumer response to advertising for the P’zolo has been favorable, according to data from marketing research firm Ace Metrix. The ad for the sandwich not only garnered a high score for its effectiveness and persuasiveness, but it also positioned the P’zolo well against Subway’s sandwiches. Ace Metrix executive vice president Jonathan Symonds said that consumers’ comments on the ad mentioned Subway three percent of the time, a significant amount given that Pizza Hut did not name the rival for its new sandwich platform. Gordon said the P’zolo “looks like a great product” and is an effective way to use the restaurants’ resources during lunch hours when the units are open and have staff waiting to be utilized.

“The advertising was extremely well done, and I’m sure they’ll get some trial,” he said. “But it might not be so much to move the needle a tremendous amount. They may get more incremental traffic for a $5 sandwich versus a $10 pizza, so traffic could go up a little and the check could go down a little.” However, while the P’zolo is a nice daypart extension and the $10 Dinner Box can get some incremental traffic from the family portion of the customer base, “the customer would perceive a new pizza as more interesting and relevant,” Gordon said. “If we’re looking at different products for Pizza Hut, the P’zolo is something they should have done sooner and the $10 Dinner Box is interesting, but I would rate them fairly low among transformational traffic drivers,” he said. Among Gordon’s consulting clients is a large group of Domino’s franchisees, he disclosed.

Taco Bell: Cantina Bell menu and Doritos Locos Tacos

Gordon and the investment community are most bullish on Taco Bell’s prospects for a sales turnaround based on the strength of the recently introduced Cantina Bell menu and the Doritos Locos Tacos, which debuted back in March. In a research note, Mark Kalinowski of Janney Capital Markets projects Taco Bell’s same-store sales in the United States to be above 11 percent when Yum reports second-quarter earnings next week. Taco Bell chief executive Greg Creed said during an investor presentation in May that Doritos Locos Tacos in particular were a transformative product, as the chain sold 100 million of the item during its first 10 weeks in the system. Creed also noted that 90 million of those transactions were incremental. While Gordon is skeptical of the 90 million incremental-transaction figure without seeing data for point-of-sale and customer intercepts, he nonetheless expects a big quarter from Taco Bell based on menu innovation. “The average check component will be up more, and they’re definitely going to have more traffic and visibility with all the marketing they’re doing,” he said. Taco Bell officials said the Doritos Locos Tacos line would be ripe for future extensions, including a Cool Ranch flavor before year-end. As for the Cantina Bell menu, with a burrito or bowl made with higher-quality ingredients developed by celebrity chef Lorena Garcia, Gordon speculated that the effects may not last as long. “Cantina Bell can’t possibly hurt the business, but it’s folly to assume that Taco Bell would be competing any way with Chipotle or any of the fast-casual concepts,” he said. “It’s a completely different market and purchase occasion. I think they will have some trade-up from existing customers, and they’ll get some trial, but I see this more as a short-term benefit rather than repositioning the entire brand.” Louisville, Ky.-based Yum operates or franchises more than 37,000 restaurants worldwide.

CKE Inc. scrapped plans to take the Carl’s Jr. and Hardee’s operator public this week as investors balked at the poor timing, shaky financials and harsh head winds against the fast-food industry.

The fast-food chain, which started as a hot dog stand 71 years ago in Los Angeles, was unable to persuade investors to buy into its initial public offering of stock. CKE postponed the deal at the last minute Thursday night, citing market conditions.

But analysts said the biggest reason CKE put off the IPO was that owner Apollo Management made a series of miscalculations that scared off investors. Critics said CKE, loaded with $1.5 billion in debt, was just not ready to go public.

“Apollo milked it and destroyed the balance sheet, as is typical of private equity firms,” said Francis Gaskins, editor of IPOdesktop.com in Marina del Rey. “It then takes awhile for the company to work itself back into profitability, and Apollo didn’t have enough time with CKE.”

This would have been the second time that CKE had gone public after founder Carl Karcher listed the company’s shares in a well-received IPO in 1981.

This time around, the Carpinteria fast-food giant is a drastically different company. Apollo bought CKE and took it private two years ago for $700 million, then began taking on massive amounts of debt.

Much of the money Apollo would have raised in the IPO was expected to pay down junk bonds that the firm used to acquire CKE. The company had expected to raise $200 million during the IPO, and Apollo would have remained its biggest shareholder.

In addition, Apollo paid itself $190 million in dividends from CKE last year, according to regulatory filings. That includes $13.8 million that CKE would hand over to Apollo to end a management services agreement.

The scenario is typical for private equity firms, which use debt to pay themselves earlier and then cash in again after an IPO. Most private equity takeover teams wait four or five years before releasing companies onto the public markets, giving them time to stabilize away from the public eye.

“They used CKE similarly to a credit card,” said John A. Gordon, a principal with Pacific Management Consulting Group, which advises restaurants. He said the IPO process was “an embarrassment and a total waste of time for Apollo and CKE.”

Another financial factor that weighed on investors is that CKE has not shown an annual profit for two years, and in 2011 suffered a $19.3-million loss. Although sales have grown modestly, much of the company’s cash has been used to pay interest on the debts it owes.

CKE, in an effort to cut costs, even stopped paying matching contributions to employees’ 401(k) retirement accounts.

“The company’s weak financials made the IPO as hard to digest as some of the fast-food it serves,” said IPO research firm PrivCo Chief Executive Sam Hamadeh, who added that he had spoken with investment managers who passed on CKE.

Another fumble for Apollo and CKE was the IPO’s timing, analysts said.

Early August has always been a slow period for such launches, with much of Wall Street on vacation and the remainder worn out by the debuts that tend to swarm the market earlier in the summer. CKE would have been the fifth restaurant company to go public since June.

The most recent, Outback Steakhouse owner Bloomin’ Brands Inc., launched Wednesday. But shrinking demand forced the company to price at $11 a share, below its originally expected $13 to $15 range, while also selling fewer shares than it had hoped.

Both CKE and Apollo planned to offer about 6.7 million shares. After Bloomin’ Brands’ subdued debut, analysts said investors probably balked at CKE’s price range of $14 to $16 a share.

“Investors are so jittery right now that expectations going forward are conservative,” said Nick Setyan, a restaurant analyst with Wedbush Securities. “Appetite for these types of IPOs, particularly for these old, mature stalwarts, has gone away.”

Indeed, there’s heavy competition from younger brands such as Smashburger and Five Guys Burgers and Fries, which have ambitious expansion plans and more buzz. Although CKE has been pushing its store remodeling efforts and international development, its existing base of more than 3,000 locations makes analysts skeptical that it is capable of a major growth spurt.

CKE has also struggled to distinguish itself in recent years, according to research.

Hardee’s and Carl’s Jr. sales are outranked by chains such as Wendy’s, Jack in the Box and Dairy Queen, according to QSR magazine. Carl’s market share of the burger segment fell below 2% last year for the first time since at least 2005, compared with Burger King’s 12% and McDonald’s 49.6%, according to research group Technomic.

“They’re average for speed, average for value, average for food quality,” said Mark Kotkin, director of survey research for Consumer Reports. “They don’t stand out particularly.”

It was not known if Apollo will revive the IPO at a later date.

But if CKE does list its shares on the New York Stock Exchange, it would be a far cry from the first time the Southern California native debuted publicly in 1981. Back then, a heady sense of optimism pervaded the $1 5-million-a-year enterprise, said Loren Pannier, who was then serving as chief financial officer.

“We were going from a small little regional chain to something bigger,” said Pannier, now a retiree in Newport Beach. “It was like going from the minor leagues to the big leagues.”

After a five-month search for a new chief executive, Maryville-based Ruby Tuesday has turned to the nation’s largest full-service restaurant chain to fill its top job.

James “J.J.” Buettgen resigned Monday from his position as senior vice president and chief marketing officer at Darden Restaurants to become president and CEO of Ruby Tuesday.

Buettgen, 52, will begin his new roles effective Dec. 1, when he takes over for Ruby Tuesday founder Sandy Beall, who announced in June that he was stepping down after 40 years. Beall previously said he hoped a replacement would be named before Thanksgiving.

Meanwhile, lead director Matthew Drapkin, a partner in the investment firm Becker Drapkin Management, will take over as chairman of the board, also effective Dec. 1.

John Gordon, principal at San Diego-based chain restaurant consulting firm Pacific Management Consulting Group, said Buettgen’s hire appeared to be a good one.

“It will give a bit of aura to Ruby Tuesday to take a high-level executive out of Darden to join them,” he said.

While Darden is facing its own challenges, Ruby Tuesday is in far worse shape, he added.

However, Darden has multiple distinct brands, including Red Lobster, Olive Garden and LongHorn Steakhouse. Experience operating those could help Ruby Tuesday, which has recently been expanding its own portfolio to include its in-house seafood concept, Marlin & Ray’s, and Lime Fresh Mexican Grill, which it acquired in April.

“If there’s any shot at all at making a go of the multiple brands Ruby Tuesday has kicked off, J.J. and his team might be able to assess it,” Gordon said.

In a statement posted on its website, Darden indicated that Buettgen had an interest in leading a company.

Before his most recent role at Darden, Buettgen served as Darden’s senior vice president of business development and as president of Smokey Bones Barbeque & Grill. He has more than 20 years of experience in the restaurant and consumer industries, including roles at Disneyland Resorts, Brinker International and General Mills.

“It is an honor to lead Ruby Tuesday, and I am excited to join the company and work with the seasoned management team and dedicated team members to create value for our shareholders. I believe this will be an exciting period of growth for the company and I am eager to begin,” he said in a news release.

Buettgen holds a bachelor’s degree in finance from Miami University in Oxford, Ohio, and a masters in business administration in marketing management from the University of California at Los Angeles.

It only seems like Bill Ackman spends every waking moment haranguing Canadian Pacific Railway’s management. Instead, in his spare time, the activist investor has been preparing the iconic U.S. fast-food chain Burger King Corp. for a public offering, with shares set to trade in June.

At this time, we offer no comment about Mr. Ackman’s plans for CP. But a look at his Burger King presentation, coupled with the disclosure of the proposed stock offering, makes us wonder, in the words of Burger King competitor Wendy’s: Where’s the beef?

Indeed, the success of Wendy’s Co. highlights how Burger King’s return to the public markets its second IPO since 2006 – comes at a suboptimal time for the chain. Wendy’s overtook Burger King in U.S. sales in 2011 for the first time, dropping the chain to third place (the mighty McDonald’s is first).

Per Mr. Ackman’s own presentation, Burger King’s average sales per restaurant in North America sit at $1.15-million (U.S.), with Wendy’s at $1.46-million and McDonald’s at $2.43-million. Closing the sales gap with Wendy’s, Mr. Ackman says, would increase “EBITDA minus capex,” or earnings before interest, taxes, depreciation and amortization minus capital expenditures, by about $200-million, or 40 per cent of the company’s 2011 figure.

Is Burger King poised to do that? Clearly unclear. Mr. Ackman is only able to tout four consecutive months – from December through March – in which Burger King’s North American same-store sales increased. The numbers were profoundly negative for much of 2011; the company’s securities filings say it closed out 2011 with a decline of 3.4 per cent in same-store sales. (Its international locations, where growth was better, weren’t enough to make the companywide number positive for 2011.)

When a buyout firm affiliated with Mr. Ackman took Burger King private in October, 2010, it was widely assumed the tough turnaround decisions would be made out of the public’s eye. One of the presumed fixes was a significant investment in restaurant remodelling and upgrades: John Gordon, principal of California-based restaurant consultancy Pacific Management Consulting Group, wrote in a blog post on Seeking Alpha that at the time of the 2010 going-private transaction, Burger King had a capitalinvestment backlog of at least $2-billion.

Well, Mr. Ackman has a plan for that: Get the Burger King franchisees to pay for it. Various media reports have suggested the franchisees haven’t bought into the idea, and Mr. Ackman’s own numbers make clear why.

He suggests a franchisee who selects a $250,000 “low cost remodel” can achieve a 10-per-cent sales uplift and generate extra EBITDA of $28,000.

But, says Mr. Gordon, the restaurant consultant: “The problem is no one in the quick-serve restaurant space has achieved that. McDonald’s gets double-digit same-store sales bumps with a scrape and rebuild, but that is not what we’re talking [about]. Jack in the Box has done a nice job of remodelling, but reported low/minimal lifts in 2010-11, for example. The norm is single digits.”

Substitute a 5-per-cent sales lift in Mr. Ackman’s model, and the EBITDA is around $14,000 – barely more than the $12,000 in interest costs a franchisee incurs by borrowing 80 per cent of the remodelling project at 6 per cent annually (again, Mr. Ackman’s example.)

Much of the Burger King case is based on similar beef-patty-in-the-sky projections; Mr. Ackman says that while the company currently has just over 5,000 locations worldwide, it has the potential for more than 23,000, based on the U.S. rate of penetration of one restaurant for every $2-billion in gross domestic product.

The “reasonable” multiple for a newly public Burger King, Mr. Ackman believes, is 13 to 16 times EBITDA minus capex, a metric likely chosen because the company spends barely any money at all on capital expenditures. At the top end of that range, Burger King would trade above McDonald’s, which has already executed on nearly everything Mr. Ackrnan hopes Burger King can do.

At some point soon, someone may suggest to you that buying Burger King shares gets you a piece of a top -flight fast food company. That, I submit to you, would be a Whopper.

Some franchisors like their restaurants so much, they buy them back from the franchisees and convert to company owned. What’s behind the so-called de-franchising trend? Cash reserves and good unit economics.

Frisch’s Restaurants had a deal in March to sell its 28 Midwestern Golden Corral units to Aziz Hashim, the multiple-concept franchisee. But the chain’s franchisor saw the price tag and took an unusual step—Golden Corral swooped in to buy the restaurants itself.

Golden Corral was armed with a contractual option granting first right of refusal. “It just made sense for us to take this opportunity to add to our portfolio,” said Bob McDevitt, senior vice president of franchising for the 485- unit chain, based in Raleigh, North Carolina. “As we say to our franchisees, we like to eat our own cooking.”

One of the trends in franchising in recent years has been re-franchising, or the sale of company- owned units to franchisees. Numerous concepts, including Yum! Brands, Burger King, Jack in the Box and Jamba Juice, are unloading company-owned units as fast as they can. They believe they’ll do a better job if they concentrate on franchising, and franchisees typically outshine corporate when operating the restaurants.

Now a counter-trend is emerging—some call it de-franchising—in which a number of concepts seek to buy franchise units and grow company operations. Panera Bread, Buffalo Wild Wings, Ruby Tuesday, Texas Roadhouse and Chuck E. Cheese, among others, have been focusing on running more company-owned units.

For franchisees, this might actually be a good thing—a sign that the franchisor is bullish about the system and its future. While each system has different motivations, and some are “de-franchising” more than others, those chains buying franchisee-owned units are more likely to have better unit economics than are those systems selling company stores.

De-franchising can be seen as a “bull signal,” said John Gordon, a restaurant analyst with Pacific Management Consulting Group in San Diego. Refranchising, on the other hand, is more of a bear signal, an indication that the franchisor believes it would be more profitable franchising the system than running its own restaurants.

But there is a downside for franchisees. Franchisors that buy up units often get them at a low price, because they either get involved in the sale early in the process or, more likely, they have the right of first refusal to buy those restaurants. Chains that exercise that right tend to drive off potential buyers, which keeps prices low.

Right markets, right price

Two of the most successful publicly traded franchises in the country, Panera Bread and Buffalo Wild Wings, are both acquiring franchisees, albeit at a pace the chains call “opportunistic,” which means they buy franchisees that are in the right markets, at the right price.

In 2008, Panera Bread had 725 franchise units, 58 percent of its 1,252 total unit count. Today that percentage is down to 52 percent. The number of company-owned Panera Bread operations grew from 527 in 2008 to 740 last year.

“Panera continues to want to be a franchise company,” a Panera spokesman said, but will move to buy when the return is right. “Some of our franchisees are in a different place in life, whether retirement or simply stepping down. When a franchisee does want to sell, we evaluate the opportunity and will move forward on an acquisition if we believe we will earn an acceptable rate of return.”

Similarly, Buffalo Wild Wings saw its percentage of franchisee-owned units fall from 64. 6 percent in 2010 to 60.1 percent last year. On the company’s most recent quarterly conference call, CEO Sally Smith said the company is “open to acquiring attractive franchise restaurants.”

Both chains boast store-level operating profits of 20 percent or more. And that’s the point. When stores are running strong and making good cash, franchisors have a greater incentive to run their own stores. “If you’re really optimistic about your ability to create value and grow profit dollars, you’re less likely to share that,” said Sara Senatore, analyst with Bernstein Research in New York.

She cited healthy store-level profit margins at Chipotle, which does not franchise any units. “A great poster child for somebody that doesn’t want to share with anybody is Chipotle. They like their margins of 25 to 26 percent. They don’t need to franchise.”

Other chains are aggressive about buying out franchisees. Chuck E. Cheese, the Texas based pizza and games chain, is down to 36 domestic franchised units as the company looks to operate all of its units in the United States. The company is franchising in international markets, however. Like the other concepts, its restaurant margins run in excess of 20 percent, thanks to its high-margin video games business. Similarly, the steak chain Texas Roadhouse has stopped franchising and will buy up franchisees as they come for sale.

“If you have a restaurant with a couple million” in average unit volume “and get a margin exceeding 20 percent, that’s a likely candidate with de-franchising,” Gordon said.

Life cycle matters

At least part of the reason is due to life cycle. Chains on a growth trajectory feel no need to franchise because their sales are booming and their profits are strong and they have the cash to add units. As chains age, sales stumble and margins shrink, pressure mounts for them to sell off company stores and focus on franchising. Companies sacrifice the cash restaurant operations can bring in for lower overhead and capital costs. In many cases, franchisees can do a better job operating those stores.

“It’s a function of unit economics, and where they are in the growth cycle,” Senatore said. Mature companies sell a large annuity (profits from restaurants) for a smaller annuity (royalty payments from franchisees) and less risk. Thus, older chains have been more likely to re-franchise, such as Yum! Brands’ chains KFC, Pizza Hut and Taco Bell, and Miami-based Burger King, which is quickly selling company units to franchisees worldwide.

There are certain exceptions. Jamba Juice is a relatively young brand and it has been refranchising, or selling company stores to franchisees. Ruby Tuesday is an older brand with weaker economics and it has been de-franchising, or buying up franchisee-owned stores, largely because it sees itself as an operator.

There’s one company that’s actually doing both. Jack in the Box has been refranchising units in that chain for years in an effort to become 80 percent franchisee-owned. But the company has been more likely to develop units under its high-growth fast-casual brand, Qdoba, which has been moving in the opposite direction—toward more company-owned units in markets where it prefers to run company- owned stores.

Yum Brands Inc. (YUM), the parent company of KFC, Pizza Hut and Taco Bell, is selling hundreds of its U.S. restaurants to franchisees in an effort to further distance itself from the volatility of the owner-operated restaurant business.

The Louisville, Ky.-based company, which now earns the majority of its profits internationally, plans to reinvest the money from sales of its domestic restaurants in building new ones in countries such as China and India, where economic growth is stronger.

The so-called refranchising of its U.S. restaurants will help the company boost its profit margin at home. But there are risks to relinquishing corporate control of a brand’s image, and it’s tough to find restaurant operators who are willing to expand in the current economic environment.

In the U.S., Yum plans to reduce its ownership of Taco Bell restaurants to 16% from 22%, and its Pizza Hut and KFC stakes to 5% from 7% and 9%, respectively.

We tend to reduce our ownership of highly-penetrated, low-growth or lower-performing businesses, and we increase our ownership in lower-developed, higher-growth businesses, where we think we can get better returns,” Chief Financial Officer Rick Carucci said during a recent investor presentation. Yum says its returns on invested capital, reaching more than 22%, are some of the highest in the industry.

Five years ago, less than one-third of Yum’s company-owned stores were in emerging markets. Because of refranchising in developed countries, and increased equity stakes in China and elsewhere, now about 60% of company-owned stores are in emerging markets, and Yum expects that figure to reach 70% by 2014.

Refranchising is fairly common among mature restaurant chains because it insulates the parent company from the impact of external factors like unemployment and commodity costs. It also relieves them of many capital expenses associated with keeping stores’ kitchens, technology and decor updated, says John Gordon, a principal at Pacific Management Consulting Group, an advisory firm for chain restaurants.

McDonald’s Corp. (MCD), which often serves as a best-practice model for the fast-food industry, maintains about 10% ownership of its restaurants in the U.S.

“Older brands refranchise because return on invested capital becomes so important, and so mathematically, it makes sense for them to do so in mature markets and develop in places like China,” Gordon said.

With the latest refranchising, Yum says it has achieved about one percentage point of margin expansion in the U.S., most recently reporting a profit margin of 14.4%.

“If franchisees have access to capital and are good operators, then sure, go for it,” Gordon said. ’But at the same time, you can’t just ignore the U.S.; it’s still largest economy in world.”

Yum is in the midst of attempting to turn around its U.S. business, after seeing sales at established locations slip last year. Gordon says stepping further away from the ground floor of restaurant operations can make a revamp like that all the more difficult.

“But restaurant companies divesting of their locations doesn’t mean they’re abandoning brand; it just means they don’t think they’re good operators,” says Adam Hanft, a brand strategist and CEO of Hanft Projects. “Yum has been aggressive in refranchising, so it’s clear strategically that they don’t want to operate in the U.S.”

Still, the struggling U.S. economy is limiting the number of franchise operators who have the money and desire, to expand– especially in brands that aren’t doing so hot.

Adding to the hurdles, the U.S. market is heavily saturated with fast-food competition and banks are especially tight on loans. Franchisees don’t always have the access to cash that the parent company would for fixing up older units or investing in new products and marketing, necessary to orchestrate a resurgence of a chain.

Yum remains optimistic about its recent progress in the U.S. and the potential for its brands under a more franchised model. “We realize there Is much work to be done,” said Chief Executive David Novak. “And we expect more consistent performance going forward.”