Chain Leader

David Farkas

Shining Through
February 16, 2007

It’s that time of year—earnings season—and, as everyone expects, the results won’t be very pretty for casual dining. Bleak is a word that comes to mind.

It’s almost old news. Last August, you may recall, CIBC’s John Glass, after noting total same-store sales inched up just 1.4 percent in Q2, announced restaurants were in their worst slump since the 1991 recession.

Still, the pain continues. Same-store sales at Applebee’s dropped sharply in January. Systemwide, comparable sales fell 5.8 percent. Worse yet, comps at company units tumbled 6.6 percent, with guest traffic down 8 percent. Last week, Applebee’s hired a new marketing chief, George Williams, a private marketing consultant since 2002 whose last post was at Blockbuster Video. Brinker, The Cheesecake Factory, O’Charley’s and Champps also reported negative or flat comps.

The thing is, not every casual-dining chain is experiencing sales problems. Take Benihana, for example, which has been trading at $32 and change recently. Its three concepts—Benihana, RA Sushi and Haru—put it among the leaders in full-service Asian dining. The cuisine, though well represented in this country, is gaining adherents if the success of P.F. Chang’s and the popularity of Asian-influenced dishes is any indication.

True, management has reneged on guidance a few times this year, apparently uncertain as to how much renovations will impact earnings. But sales are growing nonetheless, reports William Hamilton of Sanders Morris Harris, who has a “buy” recommendation on the stock.

Hamilton suggests overlooking the “weaker guidance since it’s driven by short-term issues and a necessary reinvestment” in the brand. Instead, he says, the top line remains strong. He predicts a 15 percent compound annual growth rate for revenue given 4 to 5 percent weekly sales growth.

Of course, Benihana remains a small player with a market cap of just $319 million. Still, its customers haven’t pulled back.

Posted by David Farkas on February 16, 2007 | Comments (0)