Financial results were mixed this week as a cross-section of restaurant companies reported fourth-quarter earnings. Stalled consumer spending and continued traffic declines plagued top lines, while bright spots included positive earnings growth from cost-cutting moves and favorable comparison to year-ago figures.
Beyond the numbers, companies laid out strategies aimed at combating the sluggish economy and igniting sales and traffic.
Darden: The Orlando, Fla.-based parent of the Olive Garden, Red Lobster, LongHorn Steakhouse, Bahama Breeze, The Capital Grille and Seasons 52 chains provided a positive outlook on earnings for 2010, while touting planned makeovers of Red Lobster and LongHorn.
Long term, Darden is looking to remodel entire Red Lobster system into the Bar Harbor prototype, which is slated for completion by 2014, to drive traffic, according to Brad Ludington of KeyBanc Capital Markets. The Bar Harbor design was Darden’s foray into a more upscale look for Red Lobster that the Orlando-based company began in 2007.
Ludington said Darden aims to finish between 45 and 50 remodels in fiscal 2010, and then accelerate the revamping to between 120 and 150 locations in following years.
The Red Lobster makeovers run about $350,000, which includes $40,000 to $50,000 for a new sign, and add $100,000 to annual maintenance costs, Ludington reported after attending Darden’s analyst day this week. Success of test prototypes has Darden expecting traffic to increase between 4 percent and 5 percent from the makeovers.
At LongHorn, between 30 and 35 locations will be converted into the Ranch House prototype, which costs around $200,000, with $100,000 in additional annual maintenance. Traffic is expected to increase between 3 percent and 4 percent at remodeled restaurants, Ludington noted.
P.F. Chang’s: Earlier this week, the Scottsdale, Ariz.-based chain reported a doubling of fourth-quarter profits. Same-store sales declined 5.2 percent at the namesake casual-dining concept, but jumped 3 percent at the company’s fast-casual Pei Wei units. Analyst Ludington expects comps to stay positive at Pei Wei in 2010. He also noted that P.F. Chang’s reported its first meaningful revenues from franchising royalties — $134,000 — in the fourth quarter, with two international franchises opening.
“Management expects four or five more international locations to open in 2010 and we expect franchise royalty revenues to grow incrementally in coming quarters,” Ludington said.
Denny’s: The family-dining company was able to post better-than-expected results on cost cutting, gains from the sale of corporate restaurants and debt retirement.
Still, a top-line catalyst is needed, said Stephen Anderson, senior analyst at MKM Partners.
“The company appears to be hanging its hopes on a ‘Right on the Menu’ value promotion now in test markets, but we do not see this as a catalyst, and we think promotions like this one could position [Denny’s] for a potential margin squeeze in future quarters,” Anderson said.
The Right on the Menu offer is a value-priced selection of 15 different items priced at $2, $4, $6 and $8. Denny’s began testing it in January in six U.S. markets mostly in the West, according to Anderson.
Denny’s reported fourth-quarter net income of $17.9 million, or 18 cents per share, compared with a net loss of $3.5 million, or 4 cents per share, in last year’s fourth quarter. Denny’s reported a drop in total operating revenue of $140.5 million versus $184.7 million in the prior-year quarter. Same-store sales fell 6.1 percent at corporate units and decreased 7.2 percent at franchised units.
Jack in the Box: The quick-service chain is touting new products in the pipeline for 2010, with the intent of bucking its recent sales slump.
“Our marketing strategy is to target multiple dayparts and balance our advertising and promotions to feature innovative premium products along with value-priced offerings, without jeopardizing our position as a premium QSR brand,” chief executive Linda Lang said.
So far this month, Jack in the Box has rolled out a new Grilled Sandwich line, priced at $3.99 per sandwich, and a limited-time fish sandwich for $1.49. The two grilled sandwiches on the menu are turkey, bacon and cheddar and the Deli Trio, with salami, ham, roasted turkey and provolone cheese.
The company reported first-quarter earnings of $24.3 million, or 43 cents per share, for the quarter ended Jan. 17, versus $28 million, or 49 cents per share, in the previous year’s first quarter. Total revenue fell 12 percent to $681.3 million. Same-store sales fell 11.1 percent at corporate restaurants, compared with a year-ago increase of 1.7 percent.