Casual-Dining Rally Built On Fragile, Hopeful Ground
December 22 2009 - 2:29PM
Dow Jones News
A rally in shares of casual-dining-restaurant operators could
provide a bout of indigestion should signs of improving sales
wane.
Some analysts say the latest run-up is built on fragile ground,
hinging on comments from industry bellwether Darden Restaurants
Inc. (DRI), which said early Friday it "may be seeing early signs"
of sustainable improvement in sales trends in December.
Darden's comments proved to be a "rallying cry" for investors to
gobble up shares, but Barclays Capital restaurant analyst Jeffrey
Bernstein says that any guarded comments from other chains are
"likely to derail the cautious optimism expressed by a select
few."
Among the companies benefiting from the cautious optimism are
Brinker International Inc. (EAT), operator of Chili's Grill &
Bar, whose shares are up 6.6% since Thursday's close, and
DineEquity Inc. (DIN), which owns Applebee's and IHOP, up 12.3%.
Darden, which operates Olive Garden, Red Lobster and other brands,
has rallied 9.4% over the same period, while smaller chains like
California Pizza Kitchen Inc. (CPKI), Ruby Tuesday Inc. (RT) and
Red Robin Gourmet Burgers Inc. (RRGB) are also up
significantly.
That same-store sales would improve sequentially into December
was hardly in jeopardy. Last year, same-store sales fell 9.5% in
December, according to industry tracker Knapp-Track, among the
worst months ever recorded, providing an easy hurdle to top this
month.
Darden executives admitted that easier comparisons contributed
to improving same-store sales in December, calling into question
the veracity of the consumer-spending rebound. The company,
however, noted that jitters over job losses and security also
appear to be waning, leading to some optimism.
The view could sustain a rally for several weeks, says Raymond
James analyst Bryan Elliott, but he doesn't think that "we are at a
true inflection point where a sustained recovery to positive
industry [same-store sales] is likely."
Shares of casual-dining companies have made several runs at
sustained rallies over a multi-year slump, with investors hanging
their hats on either budding signs of improving spending or of
margins improving from lower costs.
With costs trimmed over the past year, casual-dining companies
are under increased pressure to grow sales. As the consumer
recovery unfolds choppily, "the sales recovery in casual-dining is
still tenuous," Morgan Stanley analyst John Glass says.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
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