Bonefish Grill could be next hot concept, analysts say

Outback Steakhouse is what stock analysts like to call a "maturing" concept.

A 15-year-old restaurant chain with 714 locations in the United States, Outback is perhaps 5 to 10 years of modest growth away from reaching 1,000 domestic units. Beyond that plateau, further investment may not pay off, chief financial officer Bob Merritt says.

So which of the Tampa company's six other brands will assume the role of growth engine?

Analysts Bryan Elliott of Raymond James & Associates and John Glass of CIBC World Markets are bullish on Bonefish Grill, the local chain Outback acquired last year. It is ending the year with 15 locations, some as far from the beach as Kentucky and Indiana.

As Americans age and grow more health conscious, Glass says, their consumption of fish increases. At the same time, casual-dining seafood has but one dominant player. "Red Lobster has had it to itself for decades," he says of the 669-unit chain. "My intuition and experience suggest (Bonefish) is a 750-store opportunity."

Outback's Merritt doesn't deny the tiny chain's good prospects. He thinks it could eventually reach annual sales of $1-billion to $1.5-billion, with from 350 to 500 locations. That's compared with eventual sales of $2.5-billion a year at the flagship Outback brand.

But he disagrees with the conventional wisdom that Italian chains such as sector leader Olive Garden (496 locations) and Macaroni Grill (185) are too plentiful to let Outback's entry in that sector, Carrabba's, grow huge. Carrabba's is more upscale, offers a different ambience and may, like Bonefish, peak at 350 to 500 units, he says.

"In 1987, when we started Outback Steakhouse, nobody ate steak anymore, and you couldn't survive if you had prices over $10. If you listen to what everybody says about the industry, you oftentimes make mistakes and miss opportunities."

Merritt has more modest hopes for Outback's two priciest brands, Roy's and Fleming's, which he predicts will one day reach $500-million in annual sales, with about 125 locations apiece.

Chain gang

Number of Outback brand locations, as of Sept. 30:

Outback Steakhouse -- 771*

Carrabba's -- 115

Fleming's -- 14

Roy's -- 14

Bonefish Grill -- 9

Lee Roy Selmon's -- 1

Cheeseburger in Paradise -- 1

* includes 57 international units.

-- Source: SEC filing

© 2006 • All Rights Reserved • St. Petersburg Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright