Slow traffic, declining sales push major industry players to lower expectations

It just isn’t getting any better out there. Late last month such industry bellwethers as Darden Restaurants, McCormick & Schmick’s Seafood Restaurants, Ruby Tuesday and Ruth’s Chris Steak House blamed slower guest traffic and declining sales for forcing them to reduce their financial forecasts for the just-ending 2007 and portions of the current new year.

All of the companies cited the weak macroeconomic and consumer environments as well as continued cost pressures from increased food and labor expenses.

At Ruth’s Chris Steak House Inc., which operates or franchises more than 100 upscale restaurants, company chairman, president and chief executive Craig Miller said he foresees no “meaningful,” industrywide turnaround from current trends until “at least the second half of fiscal 2008.”

Foodservice stock analyst Andrew Barish at Banc of America Securities LLC said in a late December report that additional cuts to expected corporate earnings are likely.

“We may be overly conservative,” he said, “but we believe restaurant [earnings-per-share] estimates need to come down nearly across the board…given the very soft—and worsening—demand environment and high inflation [from] food and labor costs.”

Heathrow, Fla.-based Ruth’s Chris said Dec. 21 that per-share earnings for 2007 are now expected to total between 79 cents and 81 cents, down from the company’s prior expectations of per-share profit between 92 cents and 95 cents. In fiscal 2006, Ruth’s Chris earned $1.02 per share.

Ruth’s Chris also said that 2007’s final same-store sales tally would be flat from a year ago—after the company had previously projected a same-store sales increase of between 0.5 percent and 1.5 percent. Its same-store sales for 2008 are expected to range from flat to down 2 percent while growth in per-share earnings is projected to fall below the company’s long-term growth target of 17.5 percent. More specific 2008 guidance is expected when Ruth’s Chris posts fiscal 2007 results in February.

SAME-STORE SALES TRENDSQUICK SERVICECASUAL DININGFAST CASUALPIZZACOFFEE and SNACKFAMILY DINING and BUFFETSource: Company reports

Ruby Tuesday Inc., based in Maryville, Tenn., said it expects to report a net loss for its second quarter ended Dec. 4 of between 18 and 21 cents per share, compared with a per-share profit of 28 cents in the comparable period a year earlier. In the latest quarter, same-store sales fell 10.8 percent at corporate Ruby Tuesday restaurants and 8.7 percent at domestic franchised units. The operator or franchisor of 935 namesake restaurants is expected to report full second-quarter results Jan. 9.

NRN STOCK INDEX AND OTHER SELECTED INDICESVariability for the 52 weeks ended Dec. 28

Orlando, Fla.-based Darden Restaurants Inc. last month reported a 29.5-percent year-over-year drop in net profit for its second quarter ended Nov. 25, with results weighed down by a “difficult consumer environment,” a “tougher than anticipated cost environment” and Darden’s October acquisition of Rare Hospitality International Inc.

Because of the shortfall, Darden cut its forecast per-share earnings forecast for fiscal 2008, which will end this May. The parent of Red Lobster and Olive Garden now expects annual earnings per share to grow between 2 percent and 4 percent from the prior year, including charges related to the Rare acquisition. In September, Darden, which operates more than 1,700 restaurants, said it expected year-over-year earnings growth of as much as 10 percent.

Meanwhile, Portland, Ore.-based McCormick & Schmick’s cut its fourth-quarter and full-year revenue expectations by about $2 million and said same-store sales are expected to be negative rather than slightly positive, as previously expected. The operator of 82 upscale-casual seafood restaurants said it was withholding specific profit projections as the sales shortfall would keep it from meeting its previously forecast per-share earnings for both the quarter and the year.

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NRN’S FINANCIAL SCORECARD (PUBLICLY TRADED COMPANIES*; $ IN MILLIONS) TRAILING FOUR QTRS.WEEK ENDED 12/28/07*EXCLUDES OTC STOCKSSOURCE: MERGENT INC. AND FINANCIAL CONTENT INC.