First looks at 2008 are not pretty as operators lower EPS forecasts

Nation's Restaurant News,  Feb 4, 2008  by Sarah E. Lockyer

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DANA POINT, CALIF. -- Humble pie was served plentifully last month as many publicly traded restaurant companies slashed earnings forecasts, predicted sagging same-store sales, and warned of continued pressures from commodity and labor costs during two major investor conferences here and in New York.

Jamba Juice president and chief executive Paul Clayton epitomized the mood as he spoke to an audience at the consumer-sector-focused ICR XChange in Dana Point about Jamba's slumping performance, especially in California.

"What a difference a year makes," he said. "Last year when I presented here it was the first conference after we went public, and there was lots of excitement. Today, obviously the stock price has gone in the wrong direction. Our performance is under a lot of scrutiny."

Jamba Inc., the San Francisco-based parent to 650-unit Jamba Juice, most recently posted a 3.3-percent drop in same-store sales at corporate units for the quarter ended Jan. 1. Its stock price has lost about 80 percent of its value since last summer.

Yet, Clayton added, "I'm very, very confident we will get through these economic headwinds."

California Pizza Kitchen Inc., operator or franchisor of about 230 restaurants, watched its stock tumble on news it had slashed its per-share earnings outlook for 2008 by as much as 36 percent because continuing macroeconomic challenges were likely to result in negative to flat same-store sales for the year. Annual earnings per share are now expected to total between 54 cents and 60 cents, down from prior estimates of 85 cents to 92 cents.

The news pushed CPK's stock price down during trading to a new 52-week low of $9.32 per share Jan. 16, the day it announced its latest projections.

For its latest fourth quarter, the company also reduced earnings expectations, from previous projections of 22 cents to 23 cents per share, to 16 cents to 18 cents, mainly on slower same-store sales.

"We don't have a silver ball on the consumer," said CPK co-chair and chief executive Rick Rosenfield. "I have to offer a mea culpa; we try to be conservative, and we try to tell our investors where we're at."

He cautioned investors not to mistake same-store sales with performance. He cited a continued double-digit surge in revenues and profitability in most stores, even weaker ones in California, which have struggled against the state's housing woes, pressures on the consumer and, like the rest of the nation, talk of a pending recession.

Ruth's Chris Steak House Inc., parent to the 100-plus-unit steakhouse chain, and Benihana Inc., parent to about 100 restaurants operating under three brands, both said they would not let the consumer headwinds halt their long-term strategies, which include investing in unit remodelings.

"We're in this for the long run," Benihana president Juan C. Garcia said. "We're not in this month-to-month, and we have every intention of completing our goals."

Benihana said it would finish its renovation project, which focuses on the older Benihana teppanyaki locations, by next year.

One of the few quick-service presenters, Carrols Restaurant Group Inc., the nation's largest Burger King franchisee, said fast-food concepts that offer a focus on value are well-positioned to succeed in these difficult times. Carrols' BK units posted a fourth-quarter same-store sales jump of 4.7 percent, helped by its value menu and late-night hours.

slockyer@nrn.com

DEALBOARD

SELECTED
MERGER AND
ACQUISITION
ACTIVITY

TARGET:       Au Bon Pain (226 bakery-cafes)

ACQUIRER:     LNK Partners, a private-equity firm,
              coupled with Au Bon Pain management

SELLER:       Investor group led by PNC Mezzanine Capital

ACTION:       $100 million equity agreement to sell majority stake

STATUS:       Expected to close in the current 1st-Q

COMMENTS:     President and CEO Sue Morelli will continue to
              lead the chain. Compass Group PLC, a minority
              investor, will continue to hold a stake.

TARGET:       Romano's Macaroni Grill (233 units)

ACQUIRER:     To be determined

SELLER:       Brinker International Inc.

ACTION:       Expected sale date pushed back to the beginning
              of the company's fiscal year 2009, which starts in July

COMMENTS:     Brinker CFO Chuck Sonsteby: "Negotiations and
              discussions are ongoing with multiple parties and
              we're still seeing continued interest ... [the process]
              is taking a little longer than we had planned."

TARGET:       Taneko Japanese Tavern (1 unit)

ACQUIRER:     Food, Friends & Co., the restaurant management
              company of industry veteran Jack Baum

SELLER:       P.F. Chang's China Bistro Inc.

ACTION:       Agreement to sell majority stake; terms not disclosed

STATUS:       Pending

COMMENTS:     The company said it expects to record an 8-cents-
              per-share charge related to the assets of Taneko
              during the 4th-Q ended Dec. 30.

TARGET:       Wendy's International Inc.

ACQUIRER:     Triarc Cos. Inc.

ACTION:       Unspecified buyout offer, known to be less than
              $3.2 billion

STATUS:       Pending

COMMENTS:     Wendy's has said there is no specific timeframe and
              the company will comment when appropriate.

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