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Hot Dogs Stale? Not At Nathan's Famous

Inside Wall Street


Nathan's hot dogs are as native to New York as the Yankees. And when the 77-year-old Nathan's Famous went public on Feb. 26, its shares sold as fast as weiners in Yankee Stadium. The stock shot up to nearly 11 that day from the initial price of 9. "It was a hot offering for a company in a business that has somewhat cooled," notes one South Carolina investment manager.

Indeed, national sales of hot dogs have been in a slump, partly because of the public's move away from fatty meals. Yet sales at Nathan's 141 fast-food outlets, located mainly in the Northeast, have been growing robustly. "Nathan's secret lies in its premium, all-beef hot dogs and the way the new management, led by CEO and President Wayne Norbitz, has kept sales growth and profit margins way ahead of rivals," says veteran restaurant analyst Roger Lipton. He notes, for instance, that average sales at Nathan's "type A" eateries--with 400 sq. ft. to 1,200 sq. ft.--total $844 per sq. ft., compared with sales of $350 and $417 per sq. ft. at Au Bon Pain and Sbarro, respectively. Lipton figures that the cost of goods and labor are 51% to 53% of sales. "Combining that with Nathan's low occupancy expenses produces attractive profits," he notes.

For these reasons, Nathan's shares, now at 9 1/8, are as much of a bargain as its hot dogs, which sell for $1.69 to $1.95, says Lipton. Revenues, up to nearly $22 million in the year ended Mar. 31, 1993, from $20 million in fiscal 1992, should hit $29 million next year.

LIKE BUNNIES. Lipton expects Nathan's to grow even faster in the years ahead as its strategy of putting up franchises in malls, airports, travel plazas, and department stores picks up speed. Marriott, which already operates 15 Nathan's eateries on highway travel plazas and 9 others at airports, is contracted to open a total of 90 Nathan's units. Caldor, another franchisee, operates 32 Nathan's at its stores and is expected to open 25 more by March of next year, Lipton says.

Compared with other restaurant stocks, Nathan's has a low price-earnings ratio. Cracker Barrel trades at a p-e of 32 based on estimated 1994 earnings, and Outback Steakhouse has ap-e of 25. Nathan's is 16, based on Lipton's estimate of 56 for the year ended Mar. 31, 1994 vs. 1993's 34 . For 1995, the analyst expects earnings of 90 a share. He sees the stock more than doubling in two years.GENE G. MARCIAL

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