Casual-dining companies this week continued to highlight cost-saving initiatives that drove profits even as sales remained soft, leading observers to believe a much-hoped-for sales recovery is not in the cards this year.
California Pizza Kitchen Inc. increased its estimated third-quarter earnings projection, and Ruby Tuesday Inc. posted a better-than-expected bottom line result for its latest September-ended quarter. Last week, Darden Restaurants Inc. also reported improved profit.
All three, however, reported negative same-store sales and revenue tallies. Industry observers said a recovery in casual dining is not likely to occur through 2010. Without sales improvements, many casual-dining operations will have trouble continuing to leverage cost-cutting strategies, they noted.
“After years of consumer weakness, we do not believe consumers will instantly trade back up — or in — to casual dining when they rebound, due to a years-long comfort eating at quick-service restaurants or home,” said Steve West, a restaurant securities analyst at Stifel Nicolaus. “From our extensive experience, we believe if a customer is lost to another brand or concept, they are gone forever.”
West projected that many casual-dining chains will remain under sales stress for at least the next year. He said that recent channel checks indicated that September sales were still declining from year-ago levels, even in the face of easier comparisons.
At California Pizza Kitchen, which is based in Los Angeles and operates about 255 locations, total revenue fell 5.3 percent to $164.8 million for its third quarter ended Sept. 27. Same-store sales at its full-service restaurants fell 8 percent — a deeper dip than the company’s projection of a decline between 6.5 percent and 7.5 percent.
Still, the company was able to boost its earnings guidance by 3 cents per share to between 22 cents and 24 cents per share. California Pizza Kitchen said it benefited from operating efficiencies and a reduced tax rate. A year ago in the third quarter, CPK earned 20 cents per share. The company will report full results on Nov. 5.
At Maryville, Tenn.-based Ruby Tuesday, parent to a system of nearly 900 restaurants, fiscal first quarter revenue fell 7.2 percent to $300.6 million. Same-store sales for the first quarter fell 3.1 percent and 6.5 percent at corporate and domestic franchised restaurants, respectively.
Its net income, however, rose substantially to $6.1 million, or 11 cents per share, compared with earnings of $285,000, or 1 cent per share, in the same quarter a year ago. It benefited this year from reduced expenses for closures and impairments, as well as a lower interest expense. Its payroll and other operating costs also were reduced.