Small Cap Fast Food & Coffee Shop Stocks Without Exposure to China: CBOU, BAGL & JACK

Both McDonald's Corporation (NYSE: MCD) and Yum! Brands (NYSE: YUM) were taking a hit on Friday when the former acknowledged that it was being impacted by global economic volatility and the slowdown in China that it also being felt by Starbucks Corporation (NASDAQ: SBUX), meaning investors might want to take a closer look at small cap fast food or coffee shop stocks like Caribou Coffee Company (NASDAQ: CBOU), Einstein Noah Restaurant Group (NASDAQ: BAGL) and Jack in the Box (NASDAQ: JACK) that aren’t exposed to China or most other parts of he world. Specifically, McDonald's Corporation had reported that global sales at stores open at least 13 months rose 3.3% in May thanks to strength in the US (+4.4%) and Europe (+2.9%) but sales fell 1.7% in the Asia Pacific, the Middle East and Africa regions in part due to a new "value dinner" promotion in China. Meanwhile, Yum! Brands receives about 40% of its operating profits from China. Moreover and for the fourth quarter of 2011, Yum! Brands had reported a 21% same-store sales increase in China but that dropped to 14% for the first quarter. Starbucks has also bet big on China where it has 570 stores in 48 cities plus the company expects China will be its second-largest market by 2014 with 1,500 stores by 2015. However, might small cap fast food or coffee shop stocks like Caribou Coffee Company (CBOU), Einstein Noah Restaurant Group (BAGL) and Jack in the Box (JACK) be better for investors?

Staring with Caribou Coffee Company (NASDAQ: CBOU), it had 585 coffeehouses, including 174 franchised locations, in 21 states (making it the second largest company-owned premium coffeehouse operator) plus nine international markets as of the beginning of April. Specifically, Caribou Coffee Company has recently opened its 100th international store in Istanbul store (its sixth in Turkey). These international locations are primarily in the Middle East where the Caribou Coffee Company is looking to deepen its presence before branching out into new markets. Caribou Coffee Company also looks set to benefit from falling coffee and sugar prices. However, Caribou Coffee Company has had a mixed financial performance and in early May, it sank 18% after forecasting lower growth of its K-Cups portion packs that are used in Keurig brewers sold by Green Mountain Coffee Roasters (NASDAQ: GMCR) plus the company cut has cut its sales growth outlook from 20% to 10% to 6% for its commercial business (including sales to grocery chains). On Friday, Caribou Coffee Company rose 1.56% to $12.38 (CBOU has a 52 week trading range of $9.93 to $18.84 a share) for a market cap of $261.20 million but the stock is down 11.25% since the start of the year, up 19.5% over the past year and up 76.1% over the past five years.



Meanwhile, Einstein Noah Restaurant Group (NASDAQ: BAGL) own three independent brands, Einstein Bros.®, Noah’s New York Bagels, and Manhattan Bagels, which have approximately 730 restaurants in 39 states. In early May, Einstein Noah Restaurant Group reported that first quarter revenue rose from $101.2 million to $104.9 million while net income increased from $1.2 million to $3.2 million. However,  Einstein Noah Restaurant Group soared when it announced that the the board is looking at strategic alternatives that might include a merger or sale BUT there is no timetable for a final decision. It should also be noted that Greenlight Capital (headed by hedge fund trader David Einhorn) has a 64% stake in the company. On Friday, Einstein Noah Restaurant Group rose 1.44% to $17.66 (BAGL has a 52 week trading range of $11.48 to $17.75 a share) for a market cap of $298.41 million plus the stock is up 11.6% since the start of the year, up 30% over the past year and down 3.1% over the past five years.



Finally, Jack in the Box (NASDAQ: JACK) is one of the nation’s largest fast food chains with more than 2,200 restaurants in 20 states plus the company owns, operates and franchises Qdoba Mexican Grill®, a fast-casual restaurant chain with more than 600 restaurants in 42 states. On Friday, Jack in the Box rose 2.38% to $25.85 (JACK has a 52 week trading range of $18.25 to $26.06 a share) for a market cap of $1.14 billion plus the stock is up 23.7% since the start of the year, up 24.2% over the past year and up 15% over the past five years. One reason for the rise was an upgrade to Buy from Hold by Jefferies while at the end of May, Jack in the Box was upgraded by Oppenheimer with a $32 price target due to valuation and improving store-level economics. Otherwise and for the first quarter, Jack in the Box finally broke streak of four consecutive quarters of revenue declines with a 0.3% to $506.6 million while net income rose to $21.6 million from $6.8 million. Moreover, Jack in the Box reported that better traffic growth and an increase in average check along with investments made in the company brand to adjust its image accounted for the better performance.



The Bottom Line. With China slowing, Caribou Coffee Company (CBOU), Einstein Noah Restaurant Group (BAGL) and Jack in the Box (JACK) all could end up being better growth options than McDonald's Corporation (MCD), Yum! Brands (YUM) and Starbucks Corporation (SBUX).