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Outback's stock slides on weak forecast

Outback Steakhouse Inc.'s stock dropped 19 percent Friday, a day after the restaurant chain announced it expects disappointing first-quarter earnings.

Outback's latest stock price decline continues a slide that began last April, after the company first began reporting sluggish sales.

The Tampa-based chain is up against stiff competition from a growing number of steakhouse restaurants, but Outback isn't letting poor sales interfere with ambitious expansion plans. With 383 Outbacks and 50 Carrabba's Italian Grill Restaurants, the company plans to continue its aggressive growth of 75 units per year.

Shares in the Tampa-based restaurant chain fell to $18.25, a 52-week low, on Friday before closing at $19.12{. There was record volume in Outback's stock on the Nasdaq Stock Market, with more than 6-million shares traded.

Outback's plunge was a reaction to news that it expects earnings to be 10 to 12 percent below analysts' estimates due to a slowdown in sales. Wall Street had expected the company to earn 40 to 41 cents a share in the first quarter.

Outback, which went public in 1991 at $6.67 a share and watched its stock hit a high of over $40 in April 1996, is trying to boost sales by tinkering with its menu. But adding items like entree salads, hamburgers and sandwiches _ all lower-priced than its traditional entrees _ has taken a toll on revenues.

With fewer customers coming through the doors and more of those customers opting for cheaper meals, sales have taken a major hit.

The company said the average per-person check in its restaurants has dropped 2 percent since its recent menu changes, far more than anticipated.

"The (menu change) strategy is to create broader appeal that will lead to increased customer visits, especially during early and late evening hours," said Chris Sullivan, Outback's CEO. "We expected that this strategy would take some time to yield positive results and expected some near-term shift in sales."

Sales at restaurants open more than a year were down more than 3 percent in February and are down 3 to 4 percent so far this month. Same-store sales haven't grown since last April, meaning existing restaurants are attracting fewer customers than they did a year ago.

Though the bloom may seem to be off the onion at Outback, several analysts think the chain's troubles are simply a temporary setback.

"Any company is going to have its peaks and valleys, especially in a segment as hotly contested as casual restaurants," said Bill Carlino, news editor with Nation's Restaurant News, an industry trade journal. "But Outback has an okay concept and it's a very well-run company. Every large restaurant company goes through this and more often than not, rebounds."

And Michael Fineman, restaurant analyst with Raymond James & Associates, said Outback is not the only chain complaining of poor sales, especially in Florida.

To win customers back, Outback has increased its advertising. Initial results for TV ads for Carrabba's started in February and have boosted sales, the company said. Even so, Carrabba's isn't expected to contribute to Outback's profitability in the first quarter.

The slowdown in sales may have put a dent in Outback's stock, but company officials said they have no intention of letting it affect their expansion plans.

The company believes there is room for 650 Outbacks in the United States. Then there are international markets, as well as other concepts like Carrabba's.

Ron Paul, president of Technomic Inc., a Chicago-based consulting firm, said Outback needs to expand to build its brand-name identity. But as markets become saturated with Outbacks and other national chains, the task becomes more difficult.

"Finding the right site will become more important for Outback in the future," said Paul. "And once they get a nice site, they have to recognize that other chains will pile in, especially if they're successful."

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