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MRT Same-Store Sales in Free-Fall
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Highlights include Morton’s Restaurant Group Inc. (MRT), Ruth’s Chris (RUTH - Snapshot Report) and McCormick & Schmick’s Seafood Restaurants Inc. (MSSR).
Sales at Morton’s Restaurant Group Inc. (MRT) sales are going from bad to worse as the economy sinks. The upscale steakhouse operator reported that same-store sales plunged 24.1% in 1Q09, pushing adjusted EPS to a loss of $0.06 -- a penny better than the expected $0.07 loss -- from positive $0.16 earned in the year-ago quarter.
The company doesn’t expect improvement soon. Management forecasts same-store sales to fall at a rate of 20-22% in 2Q09 and revised downward the revenue and EPS guidance it issued just one month ago -- illustrating how rapidly business is deteriorating. For 2009, Morton’s now expects EPS to be between $0.14-$0.19, nearly 30% lower than the guidance of $0.20-$0.25 it issued on March 9.
Though the company trimmed food costs and G&A overhead, fixed operating expenses ballooned as a percentage of falling sales, crushing margins. Restaurant cash flow margins sank to 10.2% in 1Q09 from 16.3% in the year-ago quarter.
Roughly 80% of Morton’s diners are on expense accounts, leading to a higher average check in good economic times, but making the expensive restaurant chain particularly vulnerable to recessions. This extreme reliance on corporate spending, together with a heavy debtload that amounts to 45% of the company’s capital, works in reverse as the economy slows down. Not surprisingly, Morton’s is faring much worse than competitors, Ruth’s Chris (RUTH - Snapshot Report) and McCormick & Schmick’s Seafood Restaurants Inc (MSSR).
As operating cash flow fell into the red last year, Morton’s used debt to open new units, refurbish others and, incredibly, buy back stock. Consequently, we expect a continued rise in leverage, fueled by negative free cash flow.
We are maintaining our Hold rating.
Sales at Morton’s Restaurant Group Inc. (MRT) sales are going from bad to worse as the economy sinks. The upscale steakhouse operator reported that same-store sales plunged 24.1% in 1Q09, pushing adjusted EPS to a loss of $0.06 -- a penny better than the expected $0.07 loss -- from positive $0.16 earned in the year-ago quarter.
The company doesn’t expect improvement soon. Management forecasts same-store sales to fall at a rate of 20-22% in 2Q09 and revised downward the revenue and EPS guidance it issued just one month ago -- illustrating how rapidly business is deteriorating. For 2009, Morton’s now expects EPS to be between $0.14-$0.19, nearly 30% lower than the guidance of $0.20-$0.25 it issued on March 9.
Though the company trimmed food costs and G&A overhead, fixed operating expenses ballooned as a percentage of falling sales, crushing margins. Restaurant cash flow margins sank to 10.2% in 1Q09 from 16.3% in the year-ago quarter.
Roughly 80% of Morton’s diners are on expense accounts, leading to a higher average check in good economic times, but making the expensive restaurant chain particularly vulnerable to recessions. This extreme reliance on corporate spending, together with a heavy debtload that amounts to 45% of the company’s capital, works in reverse as the economy slows down. Not surprisingly, Morton’s is faring much worse than competitors, Ruth’s Chris (RUTH - Snapshot Report) and McCormick & Schmick’s Seafood Restaurants Inc (MSSR).
As operating cash flow fell into the red last year, Morton’s used debt to open new units, refurbish others and, incredibly, buy back stock. Consequently, we expect a continued rise in leverage, fueled by negative free cash flow.
We are maintaining our Hold rating.
Read the full analyst report on MRT
Read the full analyst report on RUTH
Read the full analyst report on MSSR
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