Steakhouses Getting Butchered All Around

by: The Stalwart

The Stalwart submits: We recently took note of the travails at famed New York steakhouse Peter Luger, which is dealing with soaring meat prices, caused in some part by ethanol. The problem isn't confined to Peter Luger though. Daniel Gross, over at Slate, looks at the broader steakhouse sector, and how shares of these companies are faring (hint: not well):

..most of the big meat chains seem to be eating the costs, as shown by their falling margins. At Morton's (NYSE:MRT-OLD) margins fell from 9.8 percent to 9 percent in the first quarter, thanks in part to rising costs. Ruth's Chris (NASDAQ:RUTH) reported that first quarter 2007 operating income fell from 13.8 percent of revenues to 10.1 percent of revenues. Rare Hospitality (RARE-OLD), which owns 280 Longhorn Steakhouse outlets, saw first quarter 2007 operating income fall to 8.6 percent of revenues, down from 9.8 percent in the first quarter of 2006.

To aggravate matters, the rising cost of beef appears to be accompanied by slowing demand. At Morton's steakhouses, same-restaurant sales rose by a meager 0.5 percent in the first quarter of 2007. For the year, Morton's expects same-restaurant revenue growth of between 1.5 percent and 3 percent. When Ruth's Chris reported first-quarter sales in April, it reduced expectations of same-store sales growth substantially. At Rare Hospitality, same-store sales actually fell 1 percent in the most recent quarter. For the remaining three quarters of fiscal 2007, the company sees same-store revenue growth of between 0 percent and 2 percent for its Longhorn Steakhouse outlets. In each instance, same-store growth is rising at a rate slower than inflation.

It's pretty easy to see who will suffer the fallout from a steak recession: airline magazines. Those things are chalk-filled with ads for steakhouses, as any bored flier knows. Without steakhouses, those magazines will be forced to rely on ads for translation tapes and Karrass seminars on negotiation.

RUTH vs. RARE vs. MRT 1-yr chart:

MRT RARE ruth chart