Every industry and every investor has one particular metric that prevails in importance above the rest. In the banking industry, it's the net interest margin. In the mining industry, it's commodity prices. And in the restaurant and retail industry, it's same-store sales, or "comps."
As its name suggests, this figure measures sales growth at locations open for at least a year and is important for two reasons. First, by holding all else equal, it communicates how effectively a company is growing its customer base. And second, growth through higher comps is more accretive to the bottom line because it typically doesn't require significant capital outlays to finance it.
A particular restaurant chain's comps are a function of multiple variables. For example, while higher prices, increased traffic counts, and revamped stores all influence it in the positive direction, deteriorating product quality and service apply downward pressure.
Given the variety of influences, in turn, it's difficult to lay down a single, hard-and-fast rule to distinguish between good and bad comps. While 5% may be unbelievable for a company like McDonald's (NYS: MCD) because it returns so much of each additional sales dollar to its shareholders, it may take double-digit comps to satisfy investors in newer companies like Chipotle Mexican Grill (NYS: CMG) or Panera Bread (NAS: PNRA) . Yet at the end of the day, one thing's for certain: the higher the comps, the better.
With this in mind, I scoured the industry's quarterly filings to find the restaurant chain with the best comps for the most recently concluded quarter. And as you can see below, the proverbial blue ribbon for last quarter goes to Arcos Dorados (NYS: ARCO) , the massive franchisee of McDonald's restaurants in Latin America, which turned in double-digit comps of 11.6%, nearly four times the industry average.
Source: Quarterly earnings releases. When available, only domestic comps were included.
Foolish bottom line
While it's difficult to argue with Arcos Dorados' performance in such an important metric, like I said above, making an investment decision based on one number alone is never a good idea. This is merely a place to start.
Another place you could start is our free report, "The Motley Fool's Top Stock for 2012," which identifies a fast-growing retail stock that's similarly making waves south of the border. To learn the identity of this highly promising growth stock, simply click here to download the free report instantly.
The article Arcos Dorados: the New King of Comps originally appeared on Fool.com.Fool contributor John Maxfield does not have a financial position in any of the companies mentioned above. The Motley Fool owns shares of McDonald's, Panera Bread, Chipotle Mexican Grill, and Arcos Dorados Holding. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill, Panera Bread, and McDonald's. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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