Fast Food Restaurants

Boston Chicken, Inc.

One of the central issues with Boston Chicken <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOST)") else Response.Write("(NYSE: BOST)") end if %> is the manner in which it accounts for its revenues. The operator and franchiser of Boston Market restaurants has 5-year average gross margins at a whopping 81.15%; however, the revenue used to calculate this figure includes interest income, which the company charges on loans it has made to its franchisees. An argument can legitimately be made that these interest revenues should be taken on the top line because they come about as a result of day-to-day business operations (i.e. that's what a franchiser does), others counter that Boston Chicken is in the restaurant business and not in the financial services industry.

The company's meager capital turnover (0.28) and slowed expansion (it will now only open half of the 300 units it had originally projected for 1997 and 1998) have caused it to stumble despite good management and a concept that appeals to the baby boomer's sense of a "family meal." With same-store sales projected to be flat to negative and the company cutting overhead by $7-10 million, earnings estimates of $1.28 per share for the year may be in jeopardy. Long term, Boston Chicken may yet dominate the "home meal replacement" category, but it will take a strong focus on same-store sales results before the heady expansion can continue.

Latest Financials

Total systemwide Boston Market gross revenue was $415.2 million for the first quarter of 1997 compared to $311.8 million for the first quarter of 1996. The increase in systemwide store revenue was due primarily to an increase in the number of Boston Market stores. Net income increased 33% to $19.7 million from $15.9 million, and earnings per share rose 24% to $0.29 from $0.24, excluding one-time charges related to organizational streamlining. After the one-time charges, net income was up 8% to $17.2 million and earnings per share rose 8% to $0.26.

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