Morton's Surpasses Estimates

Chicago-based Morton’s Restaurant Group, Inc. (MRT) recently posted second quarter 2011 adjusted earnings of 5 cents, beating the Zacks Consensus Estimate by a penny. Reported earnings were also ahead of the year-ago earnings of 2 cents per share. The earnings were driven by improvement in business travel resulting in positive comps for the sixth consecutive quarter and margin expansion.

During the quarter, GAAP net income from continuing operations was $0.7 million or 4 cents per share compared with $0.3 million or 2 cents per share in the year-ago quarter.

Morton’s, one of the leading operators of steakhouses in the world, reported total revenue of $78.0 million, up 10.7% year over year. The upside in revenues was attributable to higher comparable sales at Morton’s steakhouse restaurants (up 8.2%).

During the quarter, operating margin expanded 150 basis points (bps) to 3.0%, aided by a 140-bp fall in restaurant operating expense, a 10-bp dip in depreciation and amortization expense, a 40-bp plunge in pre-opening cost and a 50-bp decline in marketing and promotional expense, partially offset by higher food and beverage costs (up 20 bps), and general and administrative expense (up 70 bps).

Outlook

For the third quarter of 2011, management expects revenue in the range of $71 million to $73 million. Same-restaurant revenue growth is expected to range from 6% to 7% and diluted loss per share in the range of 10 cents to 12 cents.

For fiscal 2011, the company anticipates revenue between $320 million and $323 million, comparable restaurant revenue to rise in the 6% to 8% range and earnings per share between 45 cents and 49 cents.

Our Take

We believe estimates will go down in the coming days as Morton’s is entering the third quarter, which is seasonally weak and revenues are generally lower due to a reduction in summer volume. However, in the long term, we believe Morton’s will be able to generate improved earnings as the economy is showing signs of improvement. The company also intends to expand its business in both domestic and international markets. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 48 cents and 58 cents per share, respectively.

One of Morton’s primary competitors, Ruth’s Hospitality Group Inc. (RUTH - Snapshot Report) reported second quarter 2011 adjusted earnings of 10 cents per share, missing the Zacks Consensus Estimate by a penny. However, reported earnings compared favorably with the year-ago quarter's earnings of 8 cents per share attributable to higher revenues.

Read the full analyst report on RUTH

Read the full analyst report on MRT