Chicago-based Morton’s Restaurant Group, Inc. (MRT) has posted an adjusted loss of 11 cents per share in the third quarter of 2011, in line with the Zacks Consensus Estimate. The reported loss was slightly better than the year-ago loss of 13 cents per share and was within the previous loss guidance range of 10 cents to 12 cents. The company's loss comes in the wake of a seasonally weak third quarter.
During the quarter, GAAP loss from continuing operations was $2.4 million or 15 cents per share compared with a loss of $2.1 million or 13 cents per share in the year-ago quarter. The reported quarter's earnings include a charge of 4 cents related to the settlement of certain wage claims, the previously announced exploration of strategic alternatives, and a local tax law change on a deferred tax liability.
Morton’s, one of the leading operators of steakhouses in the world, reported total revenues of $71.4 million, up 7.8% year over year. The upside in revenue was attributable to higher comparable sales at Morton’s steakhouse restaurants (up 5.1%). The company witnessed significant improvement in business travel resulting in positive comps for the seventh consecutive quarter.
Geographically, the company experienced strong sales growth in San Francisco, Orlando, Dallas and Atlantic City.
During the quarter, food and beverage costs, as a percentage of revenues, spiked 70 basis points (bps) to 31.6% due to higher beef and other commodity costs. Depreciation and amortization expense rose 20 bps to 3.9% while marketing and promotional expenses jumped 20 bps to 2.1%.
However, restaurant operating expenses dipped 100 bps to 57.7%, pre-opening costs decreased 110 bps to 0.1% and general and administrative expense fell 20 bps to 6.2%.
Operating loss in the third quarter was $1.3 million as opposed to $1.9 million in the year-ago quarter.
Store Update
The company opened no new units during the quarter and currently operates 77 restaurants in 64 cities across 26 states.
Outlook
For the fourth quarter of 2011, management expects revenue in the range of $89 million to $91 million. Same-restaurant revenue growth is expected to range from 6% to 8% and adjusted earnings per share are estimated in the range of 36 cents to 38 cents.
For fiscal 2011, the company anticipates revenue between $321 million and $323 million as compared with the previous outlook of $320 million to $323 million; comparable restaurant revenue is expected to rise in the 6% to 7% range versus the previous projection of 6% to 8% and adjusted earnings per share are expected between 48 cents to 50 cents up from the previous guidance of 45 cents and 49 cents.
Our Take
The company has started the next quarter on a positive note as October 2011 comps are trending approximately 5% above the prior year. The company also intends to accelerate its business in both domestic and international markets. The company is primarily focusing on the Asian market to drive growth going forward.
We also remain encouraged by the company's Bar 12-21 initiative as an attractive sales building initiative. Morton’s continues to retrofit its existing locations with Bar 12-21, currently present in 53 restaurants.
Management expects food cost inflation to continue in 2012, with beef costs up 5% to 10% in 2012. However, with significant pricing power, we believe the company will be able to drive margins and offset input cost pressure. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 47 cents and 51 cents per share, respectively.
One of Morton’s primary competitors, Domino's Pizza Inc. (DPZ) reported third quarter 2011 adjusted earnings of 35 cents per share, which outpaced the Zacks Consensus Estimate by 2 cents and the year-ago quarter adjusted earnings by 8 cents.
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