Whenever I walk into a crowded restaurant with my mother, she remarks, "This place is a gold mine." Mom doesn't frequent the publicly held restaurant chains like P.F. Chang's ( PFCB) or the Cheesecake Factory ( CAKE). But if she did, she certainly wouldn't be uttering that phrase. The casual-dining restaurant chains' earnings reports this week stunk about as badly as a week-old asparagus and mushroom quesadilla with extra sour cream. The main culprit? Traffic. People just aren't showing up anymore. Cheesecake Factory saw first-quarter traffic decline by roughly 1%, the company reported Tuesday. At Brinker ( EAT), whose chains include Chili's and Romano's Macaroni Grill, traffic was down more than 5% in the quarter. IHOP ( IHP) also recorded traffic declines. Many companies, as they are apt to do, blamed the lack of customers on the weather. While weather can hurt sales, especially if there are nasty storms, you rarely hear a company credit sunny comfortable days for an increase in sales. It hasn't rained in about six months where I live in South Florida, yet I don't recall any CEOs discussing abnormal strength in that market. Rising gasoline prices certainly haven't helped the restaurants' cause. However, you can't pin their woes simply on bad weather and expensive gas. After all, retail chains, which face the same headwinds, have been
performing quite well lately.
Part of the problem is competition. Restaurant chains are becoming so ubiquitous that every town looks alike. Nearly every suburb with a growing population has an Olive Garden, Chili's, Panera Bread ( PNRA) and a host of others. Diners simply have more choices. Keep in mind, the whole industry isn't slumping. In fact, in March, restaurant and bar sales increased 5.3% over last year, according to the National Restaurant Association. So people are eating and drinking outside the home. They're just spreading the wealth around. It's difficult to imagine one or more of these established restaurant chains separating themselves from the pack. Their concepts are no longer novel, and adding popcorn shrimp to the menu or new art on the walls will not likely bring in significantly more customers. While mired in this slump, many of the chains are trying to enhance shareholder value with stock buybacks. Cheesecake Factory has 5.7 million shares left to buy in its repurchase program. Rare Hospitality ( RARE) authorized a repurchase of up to $55 million worth of stock and Brinker is buying back its shares as well. Here is a quick breakdown of some of the earnings reports from this week.
Brinker: Earnings of 44 cents a share missed estimates by 4 cents. Same-store sales were down 4.4% -- and that included a 1.1% price increase. Revenue inched up 2.8% over last year due to expansion.