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Higher costs cut Outback earnings

The company tells analysts that the dip is due to a list of anomalies, like expensive tomatoes and meat.

By Times Staff
Published February 17, 2005

Citing higher tomato and beef costs as well as the price tag for lobbying against Florida's new minimum wage, Tampa's Outback Steakhouse Inc. on Wednesday said fourth-quarter and 2004 annual earnings were lower than comparable periods a year earlier.

The company that operates such restaurant chains as Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Cheeseburger in Paradise, Paul Lee's Chinese Kitchen, Lee Roy Selmon's and others said fourth-quarter net income fell 15 percent. Weaker-than-expected sales at its namesake restaurants also hurt earnings.

Fourth-quarter net income fell to $38.7-million, or 50 cents per share, from $45.3-million, or 58 cents per share, a year earlier. Annual net income in 2004 was $159.4-million, down from $170.2-million in 2003, the first decline in year-to-year Outback earnings since 2001.

"The true operating results are not as bad as they seem when you look at the numbers," Outback chief financial officer Robert Merritt told analysts in a conference call. Company CEO Chris Sullivan participated in the conference call but said little.

Merritt offered a laundry list of reasons for the company's weaker earnings.

Beef and butter were more expensive to buy. The buyouts of certain partners increased expenses. The carrying costs associated with the purchase of former Chi-Chi's restaurant properties - many soon to be transformed into Cheeseburger in Paradise restaurants - were higher than expected. Lawsuits drove up legal fees by $1-million. Lobbying to fight the minimum wage amendment in Florida and proposed health care increases in California cost another $870,000.

A number of planned restaurants during the year also were scrapped because unexpectedly high construction costs no longer made them financially viable, the CFO said.

The company still has an aggressive expansion schedule, which includes as many as 44 company-owned Outbacks in the United States and abroad; 35 to 40 Bonefish Grills, 25 to 30 Carrabba's Italian Grills, 20 to 25 Cheeseburger in Paradise, 10 to 11 Fleming's Prime Steakhouse and Wine Bars, five or six Paul Lee's - Outback's newest brand - plus the addition to some smaller brand units.

Merritt predicted its Bonefish Grill chain would start to make a "significant contribution" to the bottom line this year. Outback also plans to raise menu prices in Florida in May to counter the effects of the increased minimum wage.

Florida's rough hurricane season last year hit Outback in two ways. The company's fourth-quarter dip in earnings reflected the higher costs for tomatoes after crop damage from the storms. And Outback said its commitment to donate a day's worth of sales to relief efforts for Florida's hurricanes cost the company $1.6-million.

Finally, Merritt said casual-dining restaurant competition is tougher than ever.

"There are more choices and the quality has improved dramatically in the past 15 years," he said.

[Last modified February 17, 2005, 01:20:09]