Nathan's Famous (Nasdaq: NATH), the name behind the world-famous hot dog eating contest, continues to post impressive earnings despite the recession. NATH's continuing operations for Q1 of 2010, which ended on June 30 of this year, saw a 15% profit increase as the company's net income rose from $1.35 million in last year's equivalent quarter to $1.56 million in this year's - or from 21 cents per share to 27 cents. Revenue was up to $14.232 million from $14.042 million, showing that Nathan's continues to chug ahead with its earnings growth.

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The Hot Dog as Market Niche
Compared to gargantuan players such as McDonald's (NYSE: MCD) or Wendy's/Arby's (NYSE: WEN), which have huge market caps and a restaurant seemingly on every corner, Nathan's has found a highly profitable niche with its historic hot dog trade emanating from its Coney Island epicenter. The stock has shown steady growth since 2004, as it has risen from the $5 range to a high price of $16 in the last 52 weeks. While this is hardly the growth rate of, say, the latest tech-gizmo stock, it is noteworthy that the stock plowed through the recession fairly well.

Things are Picking Up
With McDonald's showing a recent pickup in same-store sales and Wendy's/Arby's posting a recent encouraging earnings report, it looks as though things are picking up in the macro-environment for fast food. Other smaller players, such as Tim Horton's (NYSE: THI) and Red Robin Gourmet Burgers (Nasdaq: RRGB) - a smaller niche chain comparable to Nathan's size and scope - are also fielding healthier numbers as more consumers find their way into those dining rooms. This is not to be taken for granted, given the recessionary pall which struck even low-priced fast food eating and which still plagues some chains. So Nathan's, along with some of its similar-sized brethren and larger-sized competitors, may be seeing more relief in the ensuing quarters.

Nathan's Edge
Nathan's, like any good niche player, has some edges, such as its remarkably tight operating model with its franchising and branding. Consider two elements of this model: Nathan's eating contest is televised on ESPN and stands in for what otherwise would be costly paid advertising by the chain. This valuable worldwide exposure continues to reinforce both its brand strength and demand for Nathan's frankfurters. The company also has no long-term debt and recently planned another share repurchase. Going forward, if the survey regarding the end of the recession, predicted for sometime in the third quarter, comes true, Nathan's could be positioned to see another growth spurt in its business in better times.

A Hot (Dog) Future
It's unlikely that Americans will abandon the hot dog once the recession ends, and although McDonald's remains the king of fast food, Nathan's has fashioned a great space for itself, and has an array of elements it can continue to parlay into growth: a unique dining experience, the iconic brand of its hot dogs, its strong franchising and distribution program, as well as a reasonably priced commodity it can sell to consumers. There is also the suggestion that the habits of American consumers toward low-priced spending, strongly reinforced through this recession, may remain in force. With Nathan's strong, disciplined management and its focused style, the company should be able to take advantage of this both near and long term. (For more, see Sinking Your Teeth Into Restaurant Stocks.)

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Tickers in this Article: NATH, MCD, WEN, THI, RRGB

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