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Del Frisco’s lowers guidance for rest of year

Del Frisco’s lowers guidance for rest of year

Steakhouse-grill operator sees sales soften in second quarter

Del Frisco’s Restaurant Group Inc. faced stiff sales headwinds in its two lower-priced brands and challenging traffic at its namesake upscale steakhouse concept in the second quarter ended June 16, executives said Thursday.

Southlake, Texas-based Del Frisco’s reported that second-quarter same-store sales fell 6.3 percent at Del Frisco’s Grille and 3 percent at Sullivan’s Steakhouse. At the upscale Double Eagle Steakhouse, same-store sales in the quarter rose slightly, with a 1-percent increase.

Those “choppy” headwinds led Tom Pennison, Del Frisco’s chief financial officer, to tell analysts on an earnings call that the company was lowering its same-store sales guidance to an increase of 0.5 percent to 1.5 percent for the year, from an earlier forecast of 2 percent to 3 percent.

Pennison also said the company expected earnings per share for the year to rise between 5 and 9 percent.

“Lowering our annual guidance is not something we take lightly, but [it’s] necessary in view of what we’ve achieved financially so far and a more cautious view for the balance of the year,” Mark S. Mednansky, Del Frisco’s CEO, said during the call. “There is no doubt we face challenges and are working through them.”

Mednansky said weak guest traffic, and particularly patio sales, at the nine-unit Del Frisco’s Grille restaurant base led to the 6-percent decline in same-store sales at that brand.

Mednansky said the Grille, which has grown to 17 restaurants, is “experiencing some growing pains” with staffing difficulties at some locations, but the company had a plan to tackle the issues.

“So, while not readily apparent on the surface, we think our four-point plan across leadership, menu, messaging and remodeling is working,” he said.

In addition, the company, which considers Del Frisco’s Grille a growth vehicle, has engaged Nielsen to add a layer of data collection in the company’s site-selection process.

The company is also working on marketing to a more frequent diner.

“We also know there are some misperceptions among those who have never dined with us that we might be more of a steakhouse than a grill,” Mednansky said, adding that customers can use the concept for “everyday, affordable, upscale dining” occasions like a burger and beer.

Marketing efforts starting in September will emphasize the grill aspects of the concept, he said, and the company is making changes to operations to provide a faster experience at midday.

“We are targeting a lunch pace of 35 to 40 minutes, and we also will be expanding our test of additional lower-priced menu entrees beginning late next month,” Mednansky said.

Del Frisco’s closed one Sullivan’s unit in May, with the expiration of a lease in Denver, Mednansky said. So far this year, the company has opened two new Del Frisco’s Grille units and has plans for four more, with a restaurant in Stamford, Conn., opening this quarter. The brand will also open a new Del Frisco’s Double Eagle Steakhouse this quarter in Orlando, Fla., where the company sees opportunity with the city's convention business.

“We did see fewer corporate diners in some of our restaurants, as some businesses seem to be holding back some spending, more so than some individuals,” Mednansky noted, adding that cities that rely on oil and gas exploration had been strong in the past but were seeing some sales diminish.

“They are still coming in, but they are coming in with not as many guests and they are not spending as much money as they did at this time last year,” he said.

The high-volume New York Del Frisco’s suffered a sales decline in the quarter because landlord construction closed the popular 70-seat patio, leaving it open only for a few weeks in the quarter, Mednansky added.

“That took a little bit of dip in the brand’s same-store sales,” he said.

For the second quarter, Del Frisco's Restaurant Group reported that net income fell 22.1 percent, to $3.7 million, or 16 cents a share, from $4.8 million, or 20 cents a share. Revenue in the quarter rose 9.5 percent, to $73.8 million, from $67.4 million in the prior-year period.

Del Frisco's has 47 restaurants across 20 states and Washington, D.C.

Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless

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