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Improved Restaurant Profits Signal Recovery

LOS ANGELES -- Starbucks Corp., McDonald's Corp. and other U.S. restaurant chains reported quarterly results this week that showed the economic turnaround is finally at hand, Reuters reported.

Shares in the Dow Jones U.S. Restaurant and Bars index are up 16.5 percent so far this year -- double the gain seen by the S&P 500 -- largely on the expectation that the restaurant industry would return to growth. But this week, expectations finally moved closer to reality as McDonald's, Starbucks and Chipotle posted better-than-expected profits on accelerating sales at established restaurants -- a closely watched industry performance gauge.

"I think it's quite plausible that this is the turn," Bernstein Research analyst Sara Senatore said.

McDonald's reported first-quarter earnings that outpaced analysts' forecasts on better-than-expected March sales at established restaurants in the U.S. and Europe. The fast-food giant said sales at U.S. restaurants open at least 13 months rose 4.2 percent in March, topping analysts' call for a 1.6 percent rise. McDonald's U.S. same-restaurant sales fell almost 1 percent in January and rose almost 1 percent in February, Reuters noted.

McDonald's, which is stealing share from other fast-food chains and turning up the heat on Starbucks with drinks like its frappes, said its new breakfast Dollar Menu and coffee sales helped drive the quarterly earnings gains. However, on a conference call, Starbucks Chief Executive Howard Schultz said: "They're not getting it from us."

The coffeehouse chain said customer visits to its U.S. stores increased during the March quarter -- the first quarterly rise in more than three years. That helped Starbucks post a 7 percent rise in U.S. same-restaurant sales and a profit that topped Wall Street's view. Based on its quarterly profit beat and other factors, Starbucks raised its full-year profit view.

"Consumers are feeling a bit better and probably everybody in the industry is getting some benefit from that," Starbucks Chief Financial Officer Troy Alstead told Reuters.

"We feel confident we're seeing a recovery, I'd also caution that we also see unemployment remaining high. That's going to weigh on the whole sector for a long time," said Alstead, adding it would likely be a long time before the industry makes a full return.

Meanwhile, Chipotle Mexican Grill said same-store sales were up 4.3 percent during the first quarter, more than double the rise in the prior quarter. The Denver-based company, known for selling Mexican fare made with premium ingredients such as naturally raised meats, said that increase fueled a 49-percent profit rise in the March quarter.

And even high-flying chains are seeing sales improve, according to Reuters.

Panera Bread Co. raised its targets for 2010 earnings after same-store sales at company-operated restaurants jumped 10 percent during the first quarter. That was better than the prior quarter's same-restaurant sales rise of more than 7 percent.

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