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Financial Overview — November 2008

  • NEW YORK — Hopes for a post-election market bump were dashed Wednesday as all major market indexes and the NRN Stock Index posted large declines in reaction to persistent concerns about the nation’s economic plight. The day proved particularly grim for restaurant companies, with new research suggesting a further fall-off in consumer spending in November. The sector was again plagued by weak corporate earnings and dire sales forecasts for the remainder of the year. Yet the picture was darkened even more by the release of RBC Capital Market’s Restaurant Spending Snapshot. While many operators have characterized September and October as the worst months yet for consumer spending, the RBC study indicated that the rest of the year could be even more bruising. The report said 49 percent of consumers polled during the last week of October were planning to curtail their spending in restaurants during the next 90 days, a new record for the monthly survey, which usually includes 2,700 respondents. The NRN Stock Index fell 4.5 percent to close at 974.3 Wednesday. The market-cap-weighted index of all 61 public restaurant companies is down 3.8 percent for the week, and off 16.5 percent for the year. The general market was hit as well, with declines of 5 percent in the Dow Jones Industrial Index, 5.3 percent in the S&P 500 and 5.5 percent in Nasdaq composite.
  • HEATHROW, Fla. — RUTH’S HOSPITALITY GROUP INC. said Wednesday its prior full-year profit outlook is “no longer a realistic goal” as sales for the upscale steakhouse and seafood chain operator dip lower as 2008 grinds to a close. Yearto-year same-store sales at corporate RUTH’S CHRIS STEAK HOUSE restaurants fell 15 percent in October, the company said, following a drop of 6.9 percent for the September-ended third quarter. Ruth’s Hospitality typically does not release monthly same-store sales figures, but did so because of the volatility of trends and their effect on earnings, the company said. Ruth’s now forecasts it will earn 33 cents to 35 cents per share for the year — down from previous guidance of 55 cents to 60 cents per share — if same-store sales remain near October levels for the rest of the fourth quarter. For the prior year, Ruth’s profit was 78 cents per share. For the quarter ended Sept. 28, Ruth’s swung to a net loss of $500,000, or 2 cents per share, from a year-earlier profit of $1.8 million, or 8 cents per share. Corporate revenue rose 41.4 percent to $99.3 million, including $22.1 million from the Mitchell’s Restaurant Group, acquired in February. The Ruth’s Chris, Mitchell’s Fish Market, Mitchell’s Steakhouse and Cameron’s Steakhouse chains have more than 150 corporate or franchised locations.
  • SYRACUSE, N.Y. — CARROLS RESTAURANT GROUP INC., a 317-unit BURGER KING franchisee and the parent of 89 POLLO TROPICAL and 153 TACO CABANA restaurants, on Tuesday reported a 24-percent drop in third-quarter profit, blaming increased costs in its BK division and slowed sales from hurricane-related closures among the other brands. However, Carrols’ results beat analyst expectations, and its stock price jumped 10 percent before closing up more than 5 percent in trading Tuesday after the company reiterated plans to slow restaurant development, do sale-leaseback deals, lower capital expenditures and pay down debt. “We are confident that these actions to reduce debt, combined with our ability to significantly reduce our lease-financing obligations, ensure that we will maintain an acceptable margin of safety with respect to the financial covenants in our loans,” chief executive ALAN VITULI said. For the quarter, ended Sept. 28, Carrols’ net income was $3.7 million, or 17 cents per share, versus yearearlier earnings of $4.9 million, or 23 cents a share. Revenues rose 2.7 percent to $209.1 million, reflecting a 3.5-percent rise in Burger King division same-store sales, though same-store sales fell 0.9 percent at Taco Cabana and 1.9 percent at Pollo Tropical. Carrols said Taco Cabana’s sales were hurt by the loss of 150 operating days after Hurricane Ike. The slump at Pollo Tropical was blamed on Florida’s distressed economy. Total costs and expenses in the third quarter rose nearly 4 percent, which analysts said mainly reflected a 24.7-percent year-toyear increase in ground beef costs for Burger King restaurants.
  • BURLINGTON, Vt. — Comparable-store sales at Bruegger's Enterprises Inc. restaurants increased 1.7 percent for company-owned locations and 1.7 percent system-wide for the company’s third quarter ended Oct. 30. Revenues for the quarter were $45.1 million, a 9 percent increase compared with the same period in 2007. The increase marks 18 consecutive quarters of increased sales for the company. During the quarter, Bruegger's introduced the Farmer's Omelet and continued to promote menu items introduced in the second quarter, including the Brrrueggaccino frozen beverage and the Turkey Apple Club Salad. Bruegger's annual Bottomless Mug promotion kicks off the fourth quarter with a new keytag option in addition to travel mug and cards. Bruegger's opened corporate bakeries in Darien, Conn. and Philadelphia during the quarter, as well as franchise-operated bakeries in Boca Raton, Fla., and Las Vegas, bringing the total to 283 bakeries in 23 states and the District of Columbia. The company plans to open eight bakeries in the fourth quarter.
  • MIAMI — BURGER KING HOLDINGS INC. posted a lower-than-expect 2-percent increase in first-quarter profit, blaming increased costs that offset a 12-percent surge in revenue, largely from openings of restaurants, new late-night hours and the launch of such products as nonfried Fresh Apple Fries. For the three months ended Sept. 30, Burger King earned $50 million, or 36 cents per share, versus year-earlier earnings of $49 million, or 35 cents per share. Wall Street analysts’ averaged estimate for the No. 2 burger chain’s quarterly earnings was 39 cents per share, according to THOMSON FINANCIAL. Excluding expenses from the acquisition of 72 franchised restaurants, latest-quarter per-share earnings would have totaled 38 cents, Burger King said. The 12-percent rise in revenues to $674 million reflected a worldwide same-store sales increase of 3.6 percent. BK also reported. Same-store sales in the United States and Canada increased 3.0 percent. During the quarter, Burger King added a net 67 restaurants, which marked the highest level of fiscal first-quarter openings in seven years, the company said. BK and its franchisees operate 11,600 restaurants.
  • GLENDALE, Calif. — Increased interest expenses from the year-ago purchase of APPLEBEE’S INTERNATIONAL INC. widened the third-quarter loss of franchisor DINEEQUITY INC. for the Sept. 30-ended period, to $16.4 million, or 98 cents per share, the company said Monday. The results compare with a year-earlier loss of $11.6 million, or 69 cents a share. Officials blamed the $50.5 million in increased interest from the financing of its $2 billion-plus leveraged buyout of Applebee’s, as well as non-cash impairment charges of $28.3 million from the recent sales of corporate Applebee’s units. Excluding those costs, DineEquity would have earned 47 cents per share. Revenue increased to $391.2 million from $91.4 million in the prior third quarter, before the IHOP brand parent acquired Applebee’s. However, DineEquity announced a deal to sell another 66 of its Applebee’s units to franchisees, calming investor concerns about the company’s strategy of paying down acquisition debt through such refranchisings. Earlier this year, 41 corporate Applebee’s were sold, and the two deals mark a surpassing of the company’s 100-unit divestment goal for 2008, DineEquity said. The latest sale also countered worries that the nation’s credit crunch would hinder the refranchising effort. DineEquity and its franchisees operate 1,994 Applebee’s and 1,375 IHOPs.
  • MINNEAPOLIS — BUFFALO WILD WINGS INC. said increased same-store sales and new restaurant openings helped drive its 7.1-percent rise in third-quarter net profit. Same-store sales rose 6.8 percent at corporate units and 2.1 percent at franchised units. As of Monday, BWW is the only publicly owned casual-dining company to post positive same-store sales results for the September-ended quarter, including the sector’s largest brands, Applebee’s, Chili’s and The Cheesecake Factory. Buffalo Wild Wings’ sales surge and addition of 24 restaurants are reflected in a 28.8-percent jump in quarterly revenues to $106.1 million for the three months ended Sept. 28. Earnings rose 7.1 percent to $4.6 million, or 25 cents per share, from $4.3 million, or 24 cents per share, a year earlier. BWW and its franchisees operate 545 outlets.
  • NEW YORK — Signifying a new kind of dollar menu, seven companies, including GRILL CONCEPTS, JAMBA and COSI, have seen their share prices fall this month to around $1 or less, exemplifying the tough economy and the stock market’s volatility. The dollar-stock menu also includes GRANITE CITY FOOD & BREWERY, DIEDRICH COFFEE, GOOD TIMES RESTAURANTS and NEXCEN BRANDS. Some have suffered a slow downward spiral, like Jamba, whose stock has fallen from year-ago levels of between $6 and $7 and has closed under $1 each day so far this month. On Friday, Jamba’s stock fell to 53 cents a share. Others, like MaggieMoo’s parent NEXCEN BRANDS, plunged as a result of disclosures earlier this year that it faced a liquidity crisis. In May, NexCen’s stock fell from $2.53 to 58 cents. It has not closed above $1 since then and closed at just 10 cents on Friday. Having suffered a closing stock price below $1 for more than six months, Granite City Food & Brewery Ltd. last week received a non-compliance notice from the Nasdaq exchange. Nasdaq listings are required to trade above $1, and typically have 180 days to regain compliance. Nasdaq said it had decided, however, to suspend enforcement through Jan. 16 “in light of extraordinary market conditions.” Granite City’s stock closed at 64 cents a share on Friday. Diedrich Coffee’s stock price fell below $1 on Oct. 20 and has remained there each day this week, closing Friday at 82 cents. Grill Concepts has been as high as $1.94 this month and as low as 75 cents. It closed Friday at 92 cents a share. Good Times Restaurants has traded between $2.95 and 76 cents per share this month and closed Friday at $1.05. Shares of Cosi have fluctuated between $2.06 and 87 cents per share this month, and closed Friday at $1.05.
  • CALABASAS HILLS, Calif. — THE CHEESECAKE FACTORY INC. on Thursday reported a 36.4-percent decline in third-quarter net profit to $11.8 million, or 19 cents per share. It earned $18.5 million, or 26 cents per share, a year earlier. Samestore sales fell 4.7 percent at the namesake chain and 5.1 percent at the Grand Lux Cafes. The 157-unit company’s revenue for the Sept. 30-ended quarter rose nearly 8 percent to $405.1 million.
  • HUNTINGTON BEACH, Calif. — BJ’S RESTAURANTS INC. on Thursday blamed bad weather, the July 4 holiday shift, and uncontrollable economic factors for a 35-percent drop in third-quarter net profit to $2 million, or 8 cents per share. In last year’s comparable quarter, BJ’s earned $3.1 million, or 12 cents per share. Revenues rose 19 percent to $95.7 million for the three months ended Sept. 30, though same-store sales dipped 1 percent, versus a 5.6-percent quarterly same-store jump a year earlier.
  • OAK BROOK, Ill. — MCDONALD’S CORP. reported an 11-percent jump in third-quarter net income to $1.19 billion, or $1.05 per share. For the three months ended Sept. 30, revenue rose 6 percent to $6.27 billion. Overseas markets drove worldwide same-store sales growth of 7.1 percent for the quarter, led by Europe, up 8.2 percent, and the Asia-Pacific/Middle East/Africa region, up 7.8 percent. U.S. same-store sales rose 4.7 percent, the chain’s highest quarterly domestic sales increase so far this year. McDonald’s U.S. income represents about 45 percent of overall operating profit, and helped boost the total tally by 9 percent from a year earlier. Systemwide U.S. sales rose 7 percent to $6.60 billion. CEO JIM SKINNER credited the quarterly gains to the relevance of the chain’s food and beverage offerings, its value pricing and what he called “unparalleled convenience.”
  • SCOTTSDALE, Ariz. — P.F. CHANG’S CHINA BISTRO INC. reported a 43.8-percent year-to-year drop in third-quarter profit on charges for the planned closure of 10 Pei Wei Asian Diners and slow customer traffic. Net income for the three months ended Sept. 28 was about $3 million, or 12 cents per share, versus year-earlier earnings of $5.3 million, or 20 cents a share. Revenue rose 10 percent to $298.4 million. Same-store sales fell 3.1 percent at the namesake chain and 2.9 percent at the fast-casual Pei Wei. P.F. Chang’s, which operates 182 namesake restaurants and 165 Pei Wei units, said it decided to close the 10 Pei Wei units amid negative same-store sales and cannibalization from rapid development.
  • DALLAS — BRINKER INTERNATIONAL INC., parent of the CHILI’S GRILL & BAR brand, reported a 36.8-percent drop in its first-quarter profit, citing sales pressures and higher commodity prices. Brinker earned $23.8 million, or 23 cents per share, for the three months ended Sept. 24, versus $37.6 million, or 34 cents per share, a year earlier. Revenues fell 6.7 percent to $984.4 million on negative same-store sales, the sale of 76 corporate restaurants to franchisees and 49 restaurant closures. Commodity prices pushed up the cost of sales in the quarter, as a percentage of revenue, to 28.4 percent, from 27.7 percent the year before. Brinker raised menu prices to offset the higher costs, it said. Its first quarter results included a loss from the ROMANO’S MACARONI GRILL brand, which Brinker plans to sell for $131.5 million by the end of the calendar year, though the company plans to keep a 19.9-percent equity stake in the 226-unit chain. Brinker and its franchisees operate 1,911 restaurants, including the On The Border and Maggiano’s Little Italy chains.
  • ST. LOUIS — With increased menu prices, a focus on higher profit offerings and the discontinuation of the chain’s failed Crispani pizza line, PANERA BREAD CO. succeeded at what many restaurant companies have failed to do in their latest quarters: post increased profit, margins and revenues. For the third quarter ended Sept. 25, Panera notched a 15-percent increase in net income to $13.7 million, or 45 cents per share, compared with year-earlier earnings of $11.9 million, or 37 cents per share. The company’s operating profit rose 41 percent to $22.7 million, it reported, despite what it called significant inflation in such core commodities as wheat, and cautious spending by consumers. Third-quarter same-store sales increased 3.0 percent at corporate Panera Bread units and 3.5 percent at franchised locations. The result at corporate restaurants reflected an average price increase of 6.5 percent and a drop in traffic of 3.2 percent, the company said. Total corporate revenue for the quarter rose 15 percent to $315.2 million, reflecting the positive same-store sales and the opening of 24 restaurants during the period.
  • OKLAHOMA CITY — SONIC CORP., owner or franchisor of 3,400 drive-ins, said its fourth-quarter profit fell 8 percent from a year earlier because of slow sales and higher labor and food costs. Net income for the three months ended Aug. 31 was $20.2 million, or 33 cents per share. Revenue rose 1 percent to $226.9 million. Systemwide same-store sales slipped 0.6 percent as a 6.3-percent decline in the company’s same-store sales offset a 0.7-percent rise at franchised units. For the year, net income fell 6 percent to $60.3 million, or 97 cents per share. Revenue for fiscal 2008 rose 4 percent to $804.7 million.
  • CALABASAS HILLS, Calif. — THE CHEESECAKE FACTORY INC. has temporarily stopped the repurchase of its stock to conserve cash during the “unprecedented crisis in the global financial markets,” the company told securities regulators. Cheesecake Factory also terminated executive authorizations for pre-arranged stock buybacks to “maintain maximum flexibility in its capital decisions,” This year through Oct. 16 the company
  • NEW YORK — The NATION’S RESTAURANT NEWS STOCK INDEX on Monday posted its largest one-day percentage gain this year, rising 6.7 percent from Friday’s close in a swing that followed an even larger broad-market surge. Still, investors and analysts remain concerned that pressures on the foodservice sector, including increased commodity costs and slowed consumer traffic, may only get worse before getting better. As the broader market indexes posted double-digit gains Monday, restaurant sector stocks posted a relatively weaker performance that analysts blamed on low expectations for thirdquarter results, which are scheduled to be divulged during the next three weeks. The reports are expected to be filled with decreased profits, or lower-than-expected profit growth, and an even further pull-back in annual profit expectations. Also, as a sector dependent on discretionary spending, foodservice is expected by analysts to feel the effects of higher unemployment levels and continued economic troubles. The financial markets in general were boosted Monday by investor confidence in a worldwide governmental effort to shore up the U.S. banking system and unlock liquidity. The Dow Jones Industrial Index and the Standard & Poor’s 500 Index posted their largest one-day gains since the 1930s. Another wild swing might be seen Tuesday as the credit markets reopen after the Columbus Day bank holiday.
  • DALLAS — BRINKER INTERNATIONAL INC. has cut its first-quarter and full-year earnings forecast and now expects annual per-share earnings to fall between 15 and 25 percent from a year earlier because of higher operating costs and slowed sales at all of the casual-dining giant’s chains. For the Sept. 24-ended quarter, same-store sales fell 3 percent at CHILI’S GRILL AND BAR, 3.3 percent each at ON THE BORDER and MAGGIANO’S LITTLE ITALY, 9 percent at ROMANO’S MACARONI GRILL. Brinker agreed earlier this year to sell a majority stake in Romano’s Macaroni Grill. “While we expected our first-quarter results to be down sharply ... we did not foresee the sequential pressure on the consumer as the quarter unfolded,” said DOUG BROOKS, Brinker’s chairman and chief executive. Brooks said “this challenging sales environment” led to the decline in first-quarter earnings, which the company will report in full Oct. 21. Last week Brinker estimated first-quarter earnings of between 19 cents per share and 20 cents per share, compared with 35 cents per share a year earlier. That estimate does not include special charges for lease terminations, costs from hurricane related closures and expenses for the pending sale of Macaroni Grill. For the full fiscal year ending next June, excluding special items and Macaroni Grill operations, per-share earnings should drop as much as 25 percent from the prior year, Brinker said. The company had previously forecast an earnings-pershare increase of 8 percent to 10 percent. The revised guidance is based on estimates for a full-year drop of 2 percent to 4 percent in blended same-store sales. Brinker and its franchisees operate 1,911 restaurants, including 1,474 Chili’s, 169 On The Border, 42 Maggiano’s Little Italy and 226 Romano’s Macaroni Grill restaurants.
  • GLENDALE, Calif. — IHOP/Applebee’s parent DINEEQUITY INC. downgraded its fiscal 2008 outlook for the casual-dining chain Thursday while blaming its third-quarter same-store sales negativity and IHOP’s flat results on the “very challenging” economic climate.” For the three months ended Sept. 30, IHOP eked out a 0.2-percent systemwide rise in same-store sales, reflecting negative traffic and a higher average check. Applebee’s U.S. same-store sales fell 3.1 percent both at company-operated and domestic franchised branches. At corporate Applebee’s, a decline in traffic also offset a higher average check. “Given the increasing turmoil and uncertainty facing the economy and the sharp pullback in consumer spending witnessed in the third quarter 2008, we are in the midst of a very challenging time in the restaurant industry,” said DineEquity chairman and CEO JULIA A. STEWART. Applebee’s value marketing, which failed to boost sales in the third quarter, will be intensified in the current quarter with new promotions, she added. DineEquity now expects that Applebee’s annual results would be down 1 percent to 2 percent, versus the company’s previous forecast that the range would be either down or up 1 percent. That news helped push DineEquity’s share price down more the 25 percent in trading Thursday. The company and its franchisees operate 1,375 IHOPs and 1,997 Applebee’s. Full third-quarter results are due Oct. 2.
  • MARYVILLE, Tenn. — RUBY TUESDAY INC. shares tumbled more than 26 percent in trading Thursday, a day after the casual-dining company reported a 97-percent plunge in profit for the quarter ended Sept. 2. Ruby Tuesday, operator or franchisor of 941 namesake restaurants, posted net income of $250,000, or 1 cent per share, for the fiscal 2009 first quarter. Securities analysts had expected, on average, earnings of 11 cents per share, according to Thomson Financial. In the prior first quarter, Ruby Tuesday earned $11.1 million, or 21 cents per share. Slow sales and higher interest expense and operating costs were blamed for the drop. First-quarter revenue fell 6.6 percent from a year earlier to $324.0 million as same-store sales dropped 10.8 percent at corporate Ruby Tuesdays and 7.9 percent at domestic franchised locations.
  • ROANOKE, Va. — WESTERN SIZZLIN CORP. has proposed an exchange offer for up to 680,500 shares of JACK IN THE BOX INC., representing about 1.2 percent of that company’s 56.7 million shares outstanding. The offer for stock in Jack in the Box, which operates or franchises more than 2,500 restaurants, would provide 1.607 Western Sizzlin common shares for each share of Jack in the Box common stock. On Friday, when Western Sizzlin announced the offer, its stock closed at $14.10 while Jack in the Box’s closed at $19.37. Based on those prices the offer represents a value of $22.66 per share for holders of Jack in the Box stock. Over the past 52 weeks, shares in San Diegobased Jack in the Box have traded between $17.79 and $35.13. Roanoke-based Western Sizzlin, whose system has 117 familydining steakhouses, is led by chairman and CEO SARDAR BIGLARI, an activist investor who recently also took the reins at the Steak N Shake Co. The offer is pending a formal filing and registration with the Securities and Exchange Commission, Western Sizzlin said. Jack in the Box late Monday said it would not evaluate or comment on the reported offer until the SEC filing was made. In addition to its 2,100-unit namesake chain in 18 states, Jack in the Box owns Denver-based Qdoba Mexican Grill, which has more than 400 fast-casual restaurants in 40 states.

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