Treat Your Portfolio With a Little Sizzle
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As Father's Day came and went away, we were reminded of the great American steakhouse. It seems there's no better place these days to celebrate an event than with a great steak. America's love affair with red meat continues and this has benefited meat purveyors. As the global economic recovery continues, more people are opting to eat out and that is also benefiting the overall restaurant group. What I like about the steakhouse business is that consumers tend to splurge at these restaurants and margins on not only food are higher, but beverages as well.
The top-shelf steakhouse
Ruth's Hospitality (NASDAQ: RUTH) bills itself as the largest fine dining restaurant group in the world with almost 160 restaurants. The company is known for its Ruth's Chris Steak House and Mitchell's Fish Market, which was acquired in 2008. All of its steaks are USDA Prime and fresh seafood is flown into each location daily.
In the first quarter of this year, comparable stores sales at Ruth's Chris grew 6.6% and 1.5% at Mitchell's Fish Market. Operating income grew 22% and the company paid down debt of $32 million. The company initiated a quarterly dividend of $0.04 per share and a $30 million stock buyback program.
The growth for Ruth's Hospitality is in continued restaurant expansion. The company has commitments for 19 future franchise restaurants in the next five years. There's significant opportunity for the company in the fast growing regions of Asia and Latin America where income is rising and there's an increase in demand for U.S. beef. In these regions, the beef is currently locally-sourced or like in Asia, imported from Australia. Diners preference is increasing towards the meat offered by Ruth's Chris.
A rising competitor
Del Frisco's Restaurant (NASDAQ: DFRG) owns and operates restaurants under the Del Frisco's and Sullivan's names. The company currently has 35 restaurants in 19 states. Its restaurants are geared towards high-end clientele like Ruth's Chris.
For the first quarter of the year, revenue increased 13% to $59.8 million from $52.9 million a year ago. The company opened four Del Frisco's Grilles and one Del Frisco Double Eagle restaurant. The company remains debt-free. The average check at a Del Frisco's Double Eagle was $100, Sullivan's $60, and Del Frisco Grille $50.
In looking forward, the company is forecasting comparable restaurant sales to increase 1.5% to 2.5% for the remainder of the year. Four additional Del Frisco Grille's are scheduled to open later in the year. Earnings per share are expected to be $0.92 to $0.96 per share. Earnings are expected to grow 18% to 20% in the long run. I like the Del Frisco Grille concept because its price points cater to the lunch crowd and will be a big driver of growth going forward as the company opens more Del Frisco Grilles.
The family steakhouse
Texas Roadhouse (NASDAQ: TXRH) is an American steakhouse with a Western theme. The company operates 395 restaurants in 47 states and internationally. Besides the Texas Roadhouse brand, the company also owns the Aspen Creek restaurant chain with a mountain lodge theme.
In the first quarter of this year, net income was $26.2 million compared to $18.9 million in the prior year. Earnings per share continue to grow on the back of top line sales growth. Positive traffic growth increased for the 12th consecutive quarter. The company opened three company-owned restaurants and two franchised restaurants in the quarter. The company also offers something for dividend investors with a 2% dividend yield. With a payout ratio of 45%, there's still the potential for the payout to increase.
The growth for Texas Roadhouse, like the other steakhouse chains, is in the international markets. In the Middle East market alone, the company currently has three locations and will add five more by the end of the year. In terms of U.S. expansion, the company has done a great job in bringing store opening costs down. In 2008 and 2009, the total cost to open a new restaurant was above $4 million. Currently, it's about $3.9 million for a new location. Since Texas Roadhouse appeals to families and a wider demographic with a lower-priced menu, there is still considerable opportunity for expansion in the U.S.
All three stocks continue to perform well as the economy recovers and more diners opt to eat out. Each company offers a unique concept and has built a loyal clientele. With the opportunities for expansion in the U.S. and internationally, I see revenues and profits increasing as America's love affair with steak transitions to a global love affair with steak.
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