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Costs hurt Outback's earnings
By KRIS HUNDLEY © St. Petersburg Times, published January 10, 2001 TAMPA -- The high cost of opening new restaurant concepts -- along with higher costs for workers and utility bills -- has put a dent in Outback Steakhouse Inc.'s earnings. The Tampa restaurant chain warned analysts Tuesday that net income in the fourth quarter would be 15 percent to 18 percent lower than estimates. Analysts had expected Outback to report earnings of 49 cents a share for the quarter ended Dec. 31, compared with43 cents a year ago. Investors responded by pushing Outback's shares down nearly 10 percent, or $2.44, to $22.06. In recent months, Outback has spun out a slew of new eating establishments along Tampa's Boy Scout Boulevard. In addition to its namesake chain and Carrabba's Italian Grills, Outback has opened a Fleming's Prime Steakhouse, Roy's, Zazarac and Lee Roy Selmon's. Each has a distinctive look and menu; all target people willing to spend more than the average $18 check at Outback. The proliferation of new concepts has resulted in higher-than-expected start-up costs; Outback said preopening expenses for its new stable of restaurants would be as high as $1.5-million for the quarter. While it is testing new concepts, Outback's 521 flagship restaurants had minimal sales increases in December as the chain said bad weather in several markets kept customers away. The company's 60 Carrabba's didn't suffer as much; their same-store sales were up 8.7 percent for the month. Outback's disappointing news came as little surprise to analysts, who said casual dining chains are likely to see a slowdown in sales as the economy softens and labor and energy prices increase. "There will be a potentially significant deceleration in earnings growth rate in this sector in the first quarter," said Damon Brundage, restaurant analyst with Raymond James & Associates. While new restaurant concepts were siphoning cash and existing stores were drawing fewer customers, Outback said it also was stymied in bringing more restaurants online because of permitting and construction delays. Despite the setbacks, the company has aggressive expansion plans this year, intending to open as many as 110 new locations. The expansion will include up to 80 new Outbacks, 20 Carrabba's and five each of the Fleming's and Roy's concepts. Meanwhile, as they focus on a half-dozen new restaurant formats, Outback's executives said they've given up on one short-lived experiment: Outback Sports. The division, formed about two years ago, was supposed to link the Outback name to cruise ship golf classes, soccer stadiums and portable luxury suites for sporting events. Chris Sullivan, Outback's chief executive and an avid golfer, described the effort in 1998 as a way for the chain to "extend its brand in environments where people are having fun." But Tuesday, the company said it had sold its interest in most of the sports-related businesses, including the portable event suites and golf excursions. Michael Smith, analyst with Fahnestock & Co. in Kansas City, Mo., said the axing of Outback's excursion into sports was no big deal. But he is concerned about how Outback's executives will nurture the raft of new restaurant concepts now on its plate. "That's why our buy recommendation is a limp buy," Smith said. - Contact Kris Hundley at hundley@sptimes.com or (727) 892-2996.
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From the Times Business report
From the AP
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