CEOs Discuss Steaks, Burgers, Lobsters and Nutrition Bars

Includes: BH, DRI, RBGPF, RI
by: SA Editors

Quotes from CEOs and CFOs on recent earnings conference calls, discussing their companies and markets:

Steak n Shake CEO Peter Dunn

My overall message is that we continue to focus on our top priority of gaining sustainable same-store sales momentum to improve store execution, new product innovation, and optimization of The Steak n Shake concept; however, we were disappointed with earnings being lower than prior year. The first main message is that while same-store sales remain negative during the quarter, we are encouraged by the improvement in same-store sales trends since the fourth quarter of fiscal 2006.

During the first quarter, our same-store sales declined by 1.7%, improving from minus 3.4% same-store sales decline in the fourth quarter of fiscal 2006. The improving trends change is due to some improvement in external factors, such as gasoline prices and marketing programming. Earnings were down versus prior year as expected given a difficult same-store sales environment and the impact of higher wage rates prior to a increase in late December.

Improving same-store sales remained our highest priority, and during the quarter we executed several initiatives to drive trend improvement. In November, we dropped incremental coupon designed to generate guest traffic in the pre-holiday period when consumer programming has traditionally been limited. The coupon redeemed well, but did not generate all of the incremental guest traffic anticipated.

In late November, we expanded our Holiday Milk Shake limited time offer in the direction of two new limited time creamy Milk Shakes, White and Dark Chocolate with Holiday Fudge to complement three classic flavors from prior years. The Holiday Milk Shakes were well received by customers generating sales higher than the prior year's promotion and contributing to the improving same-store sales trend.

In December, we implemented a 1% price increase to cover high labor cost resulting from new minimum wage laws, that was late December. We will continue throughout the year to monitor other proposed minimum wage law proposals to ensure that we are able to cover rising labor cost as necessary.

Schiff Nutrition International CEO ruce J. Wood

During the second quarter, we remained focused on driving profitable revenue growth in our Schiff-branded business and on our flagship Move Free brand in particular. Our second quarter net sales increased 9.5% versus the year-ago period, the branded sales up 2.2% and private-label sales up 42%.

Our branded joint-care net revenues were flat on a quarter-over-quarter basis. Our flagship Move Free brand net sales increased 10.5%. But, we experienced reduced sales on our other joint-care brands, which were impacted by new private-label entries present in the current period versus none in the year-ago period.

Nevertheless, we view our other joint-care branded business as healthy and we are taking specific measures to defend the business against price-oriented competitors.

The remaining Schiff-branded business and our Tiger's Milk Nutrition Bar brand recorded increased net sales in the second quarter, versus the year-ago period, and our private-label business benefited from both improved volume and timing of customer orders.

With respect to second quarter profitability, we recorded significant increases over the year-ago period in our gross margin, our operating earnings and earnings per share.

Ruby Tuesday CEO Sandy Beall

Our third quarter started off well, with same-restaurant sales increasing by approximately 2% in December versus 1% for November, and down 2% for the quarter. Last year in December, we were up 3.9%, so we are up 5.9% for the month – for the two years combined. Overall, the system was positive for the quarter in same-restaurant sales.

Even with these sluggish sales, we ran our business well, investing in our programs but also maintaining solid cost controls. We have a very efficient business model at both the restaurant level and the corporate level, resulting in good margins and earnings predictability. The variable for us is all about sales.

Our advertising in the second quarter was focused on our handcrafted burgers in September and October, and our fresh Jumbo Lump Crab Cake and Premium Aged Prime Sirloin steak in November. Sales benefited from our first dinner-oriented ad in two years, featuring our premium dinner product as part of our burger-centric strategy. We will continue to focus on dinner items in addition to our handcrafted burgers throughout the balance of the year. Overall, I think for the quarter, we ran our business well. We feel good about our plans and programs.

Darden Restaurants COO Andrew H. Madsen

Red Lobster same-restaurant sales for the second quarter of plus 0.7% exceeded the Knapp-Track estimate of minus 1% for competitive casual dining chains, although it was somewhat below our expectation.

For most of the second quarter, Red Lobster featured their signature Endless Shrimp promotion. This is a proven promotional concept that offers their guests both variety and value. We ran the same event in the prior-year period. Going forward, this will be even more effective with stronger product news than was advertised this year.

Red Lobster is currently featuring their Big Seafood promotion. You may recall that this event was very successful for us during the first quarter last year. It features distinctive items like Rock Lobster Tails, King Crab Legs, and this year, a new Jumbo Garlic Shrimp Scampi. This is a seasonally appropriate promotion at a time when guests are looking for something special and it is off to a great start so far this month.

In addition, I should note that Red Lobster has built a very strong culinary team and has fully implemented our discipline promotion development process, putting them in a position to feature compelling food news in the majority of their future promotions.

Stepping back from the current quarter, our plan to achieve sustainable growth at Red Lobster has three phases. The first phase was to strengthen business fundamentals. The second phase is to refresh the brand, broaden its appeal, and further build guest counts. The third phase will be to increase new unit growth.

Phase one is largely complete. In particular, the team at Red Lobster has made significant progress over the last two years improving guest satisfaction and restaurant level profit margins to their highest levels in more than a decade, and both of those fundamentals improved further during the second quarter.

Phase two began in October. The primary objective of this phase is to accelerate guest count growth by addressing the outdated brand image Red Lobster has with many lapsed users and the perception that it serves primarily frozen seafood. In late October, Red Lobster introduced a new menu design, new menu copy, and several new menu items. In addition, they introduced today’s fresh fish sheets. Now, these sheets are printed twice daily in each restaurant and showcase five to seven fresh fish choices, along with several preparation styles and signature chef specials.

These changes have been enthusiastically received by our guests and clearly reinforce that Red Lobster offers high-quality fresh seafood in a variety of exciting new dishes.

Additional initiatives to refresh the Red Lobster brand will be introduced later this fiscal year and during the first-half of next year. The team at Red Lobster is proud of their tremendous progress and we are confident that the business will continue to improve in fiscal 2007 and beyond.