Chain Leader

David Farkas

Morton’s Gets a Good Review
August 28, 2007

Amy G. Vinson, senior research analyst for Nashville-based Avondale Partners, has a “Market Perform” rating on Morton’s, The Steakhouse. Trading at 15.5 times Vinson’s fiscal 2008 estimate of $1.12, MRT represents “a compelling buying opportunity,” she claims. The 74-unit chain posted a 4.4 percent gain in same-store sales in the second quarter.

What caught my attention was Vinson’s savvy analysis of the same-store-sales performance, unusually strong under current conditions. The NPD Group, for example, says its data show one-third of consumers say they are dropping by casual-dining restaurants less frequently largely because of high gasoline prices.

The business traveler lacks the option, as Morton’s well knows. About half its units are in the top 25 U.S. hotel markets. While Vinson credits management for running good restaurants, she thinks the ebb and flow of business travel itself has a significant impact on MRT’s sales and earnings. Here’s her analysis:

“What Did 2Q Look Like? Breaking hotel down by rates, we believe the categories most applicable to the business travelers frequenting Morton's would be the ‘luxury’ and ‘upper upscale’ groups (room rates $160 per night). During 2Q'07 occupancy in those two categories was essentially flat. Occupancy at luxury hotels was down 20bps to 74%, while upper upscale was up 10bps to 75%. RevPAR ( revenue per available room) for both groups were up strong, 6.5% and 5.9%, respectively.

“Airline traffic and price were positive for 2Q. Airline onboards (passengers) were up 0.6% in 2Q'07, on a 0.4% increase in revenue per seat per mile. We believe that the positive travel indicators could be indicative of the health of the business traveler.

“Thus Far in 3Q. Overall hotel occupancy thus far in 3Q'07 (through August 18, 2007) is up 0.7% on a 6.1% increase in RevPAR. While we do not get a breakout for the categories of hotels until the end of the quarter, we would expect that the trends for strong growth in the luxury and upper upscale have not sequentially lessened in 3Q'07.

“Airline data for July indicates that onboards were up 0.2% with a strong 2.6% increase in revenue per available seat per mile. This 2.6% increase is the largest increase of 2007. We believe that we will see strong growth in August airline numbers as we will lap the FAA ban on onboard liquids which caused a fair number of travelers to change, i.e. cancel their flight plans.”

Posted by David Farkas on August 28, 2007 | Comments (1)