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OUTBACK STEAKHOUSE INC. EARNINGS // NOT QUITE RIGHT

On Wall Street, they call it an "earnings surprise."

But investors didn't greet Outback Steakhouse Inc.'s fourth-quarter performance report with cake and balloons Wednesday.

Outback, the venerable Tampa company behind chains like Carrabba's Italian Grill and Bonefish Grill, said its profit tumbled 25 percent to $28.1-million in the final quarter of 2005, even as its revenues grew 11.6 percent to $918.3-million. The company slashed its 2006 profit forecast.

Most surprised were the restaurant-industry analysts who advise mutual funds and other institutional investors. At least one, Wachovia Securities researcher Jeff Omohundro, dropped his rating on Outback's stock to "underperform," a nice way of saying sell it.

"The bottom line conclusion is that earnings remain depressed and below expectations," analysts at FTN Midwest Securities Corp. wrote.

After falling as much as 14 percent on Wednesday, Outback's stock finished the day at $40.78, down 9 percent, or $3.88 per share. Trade volume was 12 times the normal daily average.

Most of Outback's secondary brands are doing smashingly well. The main problem - aside from hurricanes, higher wages, rising utility costs and a pricey new compensation plan for store managers - is its flagship Outback Steakhouse chain, which accounts for 68 percent of the company's revenues but is known in the industry as a "mature" concept.

For Outback, which debuted in Tampa in 1988, maturity means out-of-date decor, worn-out bathrooms and carpeting, stale advertising and a failure to stay abreast of customer likes and dislikes.

Same-store sales figures fell 0.7 percent at company-owned steakhouses in the fourth quarter. At Carrabba's and Bonefish, same-store sales rose 5.2 percent and 5.5 percent, respectively.

"We were just not able to overcome the significance of the negative drag of the Outback business," chief executive Bill Allen said during a conference call Wednesday.

The company is taking a number of steps to revitalize the brand:

+ Roughly half of steakhouses are open for lunch on Saturday or Sunday.

+ A new "value menu" in use at 250 locations is boosting customer traffic in the Midwest, where gas prices and a sluggish economy had hurt sales. The menu includes lower-priced entrees with smaller portions.

+ The company is increasing its focus on the steakhouse chain. Outback sold its 50 percent interest in tiny Paul Lee's Chinese Kitchen this month. On Wednesday, the company said it would slow the expansion of its Cheeseburger in Paradise chain.

+ Many steakhouses are getting remodeled bathrooms, new carpet and wide-screen TVs for the bar area.

+ Scott Bedbury, the branding guru behind Nike's "Just Do It" campaign, is conducting an in-depth consumer study to determine what attracts some diners to Outback and keeps others away. One likely result: a redesign of the chain's indoor and outdoor lighting, paint and decor.

+ Outback hired a new ad agency to update its TV spots. The first new commercial debuted during this month's Super Bowl.

Despite such efforts, Outback expects same-store sales at its flagship brand to rise 0.5 to 1 percent this year, and several Wall Street analysts said they don't expect the brand to rebound until 2007.

Though some analysts predict Outback's stock price will climb over the next 12 months, Wachovia's Omohundro expects it to fall to somewhere between $31 and $36 per share.

There were some encouraging signs.

Analysts at SG Cowen & Co. called the drop in Outback's stock price Wednesday a good buying opportunity. A report published last week by Standard & Poor's cited the company's "superior operational history . . . excellent expansion prospects (and) sound balance sheet."

Most reassuring of all to shareholders: Berkshire Hathaway Inc., the fund operated by billionaire investment guru Warren Buffett, hasn't pulled out. It holds a 2.4 percent share.

Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

FLAGSHIP DOWN

Though Outback's secondary brands performed well in the final 90 days of 2005, the Tampa company's signature chain continued to struggle.

Outback Steakhouse

LOCATION: 915

SAME-STORE SALES: -0.7 percent

CARRABBA'S ITALIAN GRILL

LOCATION: 200

SAME-STORE SALES:

+5.2 percent

BONEFISH GRILL

LOCATION: 90

SAME-STORE SALES:

+5.5 percent

FLEMING'S PRIME STEAKHOUSE AND WINE BAR

LOCATION: 39

SAME-STORE SALES:

+10.6 percent

Roy's

LOCATION: 20

SAME-STORE SALES:

+1.8 percent

Note: Sales are for U.S. locations only. Outback did not provide same-store sales data for Cheeseburger in Paradise, Lee Roy Selmon's, or Paul Lee's Chinese Kitchen. Outback sold its stake in Paul Lee's this month.

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