McCormick & Schmick’s Seafood Restaurants Inc. said Monday it would pursue a possible sale of the company or other strategic alternatives after rejecting a $137.3 million hostile takeover attempt last month.
During a call with securities analysts to discuss first quarter results, Bill Freeman, McCormick & Schmick’s chief executive, declined to discuss the hostile bid by Tilman Fertitta of Landry’s Restaurants Inc., an offer its board said undervalued the company.
However, McCormick & Schmick’s said Monday the board had authorized a possible sale or other strategic options to increase shareholder value.
McCormick & Schmick’s rejects buyout offer
Fertitta bids $137.3 million for McCormick & Schmick’s
Also Monday, the company outlined a revised, lower-cost restaurant revitalization plan as well as the possibility of expanding its secondary Boathouse Restaurant brand, currently only in Canada, to the United States.
The new remodel program cuts in half the estimated time restaurants would need to be closed for the changes in 2011, which the company earlier said would range from light brush ups to more comprehensive redesigns, depending on the location. McCormick & Schmick’s estimates the initiative now will require only about 20 weeks in restaurant closures to complete the work this year. The remodel plan is expected to take two to three years.
This year, eight restaurants will be remodeled at a cost of about $6.5 million, rather than the previously announced plan of 10 locations remodeled at a cost of $10 million to $15 million, the company said.
The cost reduction also reflects a greater contribution by landlords than previously expected, as well as value engineering.
Focusing on units with the best potential to “deliver solid top line growth,” the company expects the remodel will deliver returns of more than 20 percent.
“Earlier this year, we announced a comprehensive revitalization plan to position our restaurants and our company for future success,” Freeman said in a statement. “As we execute the revitalization plan, we have adjusted elements of the plan to ensure that we are investing in targeted properties to improve top-line sales and restaurant level margins in those locations.”
As a result, the company is upgrading its outlook for the year, now projecting earnings per share between 31 cents and 36 cents, compared with an earlier estimate of 26 to 31 cents.
For the first quarter, McCormick & Schmick’s reported a net loss of $700,000, or 4 cents per share, compared with a net loss of $400,000, or 3 cents per share, for the same period last year.
Revenue for the latest quarter was flat at $84 million, versus $84.8 million a year ago. Same-store sales declined 3.2 percent, which the company blamed on adverse weather, a change in promotional programs and a more normalized performance at Canadian locations, which benefited last year from the Olympics.
In a call to analysts, Freeman said the company’s addition of sushi and small plates also impacted same-store sales as an increasing number of guests ordered several small plates instead of an entrée.
McCormick & Schmick’s has focused on keeping prices steady, Freeman said, choosing instead to “put more value on the plate” while competitors raise prices.
The quarterly results reflect higher labor costs as a result of the chain’s ongoing focus on training to improve service and the overall guest experience. Freeman estimated the higher labor costs impacted earnings by about 3 cents per share.
Freeman noted that locations with higher business traveler traffic saw greater improvements, indicating a recovering economy, and private event sales were up 12 percent during the first quarter.
“As economic conditions improve and diners continue to return to the upscale affordable and fine-dining segments, we are confident that the initiatives we are putting in place will drive long-term traffic gains and higher guest frequency,” Freeman said.
The company said it closed two restaurants during the quarter in Schaumburg, Ill., and Boca Raton, Fla.
Though Freeman would not discuss Fertitta’s buyout offer, which McCormick & Schmick’s board recommended that shareholders reject, a sale may still be in the company’s future.
“The company and the board are open-minded about the sale process and other strategic alternatives, and we intend to evaluate all options carefully and thoughtfully,” Freeman said.
Portland, Ore.-based McCormick & Schmick’s operates 94 restaurants, including 87 in the United States and seven in Canada under The Boathouse brand.
Contact Lisa Jennings at [email protected]