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Talk of the bay

Luxury suite venture eats away at Outback's profits

By SCOTT BARANCIK
Published August 8, 2005

Outback Steakhouse's recent quarterly report was less rosy than Wall Street analysts predicted. But the shortfall revealed last month had little to do with bloomin' onions or slower restaurant traffic.

Much of it was because of a problem with what the Tampa company cryptically referred to in its news release as "nonrestaurant-related assets."

It's no secret that Outback has invested in some nonrestaurant ventures over the years. In pursuit of profit and wider brand recognition, the company has sunk cash into such businesses as Paradise Golf, which lets members play at multiple Central Florida courses at reduced rates, and the Kentucky Speedway, a race car track that has yet to turn a profit.

The cause of the recent earnings shortfall was Outback's side business of leasing portable luxury suites.

In 1998, entrepreneur Bill Horne persuaded Outback executives to finance the construction of portable suites - gussied-up, double-wide trailers, actually - to rent out for use at auto races, golf tournaments, college football games and other sporting events. In 2001, Outback eliminated its majority interest in the venture and struck a 10-year, $17-million deal with Horne, who, along with a partner, would lease the suites from Outback and run the business independently.

Horne did not return phone calls seeking comment. But judging from Outback's most recent earnings report, the luxury suite business may not be so luxurious.

In a conference call with analysts last month, interim chief financial officer Bob Merritt said Horne and his partner were seeking more capital - after Outback turned them down - and a revised repayment plan.

Anticipating the new plan, Merritt said, Outback decided to write down the value of the luxury suite business. It recorded a pretax "impairment charge" of $7.6-million for the quarter ended June 30, causing a shortfall in earnings.

[Last modified August 5, 2005, 19:30:04]