Breaking News – Analysts see start of restaurant recovery!

by Steven Josovitz

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By Lauren  Shepherd of Nations Restaurant News

NEW YORK (April  9, 2010) After more than two years of slow sales and anemic guest traffic for restaurant operators, Wall Street analysts say a recovery in consumer spending may finally be here.

“We officially declare that ‘the restaurant consumer recovery’ began in March 2010,” said Cowen & Co. analyst Paul Westra in an analyst note this week.

Westra said same-store sales appear to be rising at restaurant chains, a phenomenon he witnessed in 2003 as the industry came out of a recession. Following a gain in same-store sales in May 2003, restaurant stocks jumped 45 percent over the next year.

In particular, Westra said “polished casual-dining” chains like Darden Restaurants Inc., which owns the Olive Garden and Red Lobster, are likely to benefit from baby boomers’ preference for dining in “high-end” environments. He said chains that can capitalize on those preferences could take diners away from “mass-casual” competitors as the economy improves.

RBC Capital Markets analyst Larry Miller agreed that a recovery may be imminent, if not already in progress. In a note to investors earlier this week, he said consumer confidence rose for the second straight month in the RBC Consumer Outlook Index.

He also noted that the company’s monthly survey of restaurant spending in April showed that 16 percent of consumers plan to spend more at restaurants over the next 90 days, versus 14 percent in March. The percentage of respondents who plan to spend less in the same time frame has also shrunk.

The positive comments come on the heels of several quarterly financial reports showing major improvements in sales and earnings for the first quarter of 2010.

On Wednesday, Ruby Tuesday Inc. reported its best quarterly sales in three years, with same-store sales at company stores dipping just 0.7 percent for the quarter ending March 2. On a call with investors, chief executive Sandy Beall said same-store sales were slightly positive in January and February despite bad winter weather.

The sales improvement coincides with an effort by the company to attract more higher-end customers. Ruby Tuesday has been rebranding itself with a new menu that focuses on entrees that will bring its average check from $12 to a range of $12.50 to $14.50, Beall said Wednesday. That effort first began in 2007.

Kona Grill Inc. also announced earlier this week a same-store sales improvement for the quarter. The casual-dining chain said same-store sales fell 2.5 percent for the first quarter ended in March, an improvement from a 9.6 percent decline in the year-ago quarter and an 8.1 percent drop in the fourth quarter of 2009. The company added that same-store sales jumped 3.6 percent in March, the first positive result since February 2008.

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