Is La Dolce Vita in Sight for Bravo Brio?
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The American palate is evolving and becoming more adventurous, a trend that’s apparent when you consider the culinary terms that have entered our lexicon over the last few years. While semifreddo (a semi-frozen dessert) and sfogliatelle (a shell-shaped pastry) are foreign to most everyone save for Food Network devotees and professional chefs, terms such as panini and pesto aren’t anymore. You can find panini at Olive Gardens nationwide – even in locales as far-flung as Grand Forks, N.D.
Aspiring Iron Chefs are ready to explore the world when they dine out, but the authentic ethnic restaurants that characterize great dining destinations aren’t always accessible to them. Nor are exotic vacations that entail lengthy waits at security checkpoints and foodless journeys in coach. Occasional splurges at the mall are, but they must be memorable and unique to justify their expense. These observations may explain the success of The Cheesecake Factory (NASDAQ: CAKE), which serves up unmistakably American, but globally-inspired concoctions such as Cajun Jambalaya Pasta and Pina Colada Cake Cheesecake in a vaguely Egyptian environment.
The American dining scene is nuanced, but as a nation, we can’t get enough Italian food. As the going gets tough, we yearn for the good old days, when we didn’t worry about student loans, unemployment, and mortgages, and we are comforted by the warmth and togetherness of the archetypal Italian table. Few of our families have ever gathered for Sunday gravy (sauce for those readers raised outside the Northeast) or passed baskets of fresh-baked bread ’round the table, but these images are ingrained in our collective imagination.
Bravo Brio Restaurant Group (NASDAQ: BBRG), operator of the Bravo! Cucina Italiana and Brio Tuscan Grille chains, has grown by feeding our illusions and dishing up Italian-style hospitality. It has done so not with the addictive breadsticks that made Darden Restaurants’ (NYSE: DRI) Olive Garden chain famous, but rather with a dressed-up menu that includes rack of lamb, swordfish, and veal. Bravo Brio reinforces its relatively upscale image by outfitting its restaurants with open kitchens and elegant décor and serving a premium Bellini Brunch on the weekends, yet keeps kitchens busy all day long with $7.95 lunch specials and a happy hour featuring $3.95 small plates that include ravioli, beef Carpaccio, fried shrimp, and cheeseburgers. An element of fine dining in the faux piazzas and Main Streets of American suburbs removed from the urban fabric, this is what Bravo Brio brings to the table.
Over the last year, however, Bravo Brio stock has behaved like a deflated frittata, shedding 12% of its value. July’s Q2 results brought disappointment, with same-store sales best compared to the company’s Margherita Flatbread (which is delicious by the way) but an 8.9% increase in revenue and 9.8% increase in operating profit driven by expansion. Guest counts decreased 2.1%, but the average check increased 2.2%. This mixed bag of news was not what investors wanted to hear, and the stock gave back its year-to-date gains. As a result, Bravo Brio has become the rare restaurant stock trading closer to its 52-week low than to its high.
Why is the market rewarding Bravo Brio’s competitors? In the cases of Darden and The Cheesecake Factory, investors are drawn to 3.2% and 1.4% dividend yields and longer track records. Darden was established in 1968 and The Cheesecake Factory in 1972, whereas Bravo Brio started out in 1992 as one Bravo! Cucina Italiana in Columbus, Ohio. Its real growth phase only began in 1998, when the Brio Tuscan Grille concept was launched, and has yet to stop. Management continues to enter new markets and has shown no sign that it will offer a dividend anytime soon.
Bravo Brio’s situation is unlike that of Ruby Tuesday (NYSE: RT), which is attempting to regain its relevance through a major repositioning that will place the home of “Simple Fresh American Dining” squarely in Bravo Brio’s “upscale casual” turf. Instead, it is the classic tale of a growth play having hiccups and being exiled from the popular stocks’ table in the proverbial lunchroom. Below is a table comparing Bravo Brio to The Cheesecake Factory, Darden, and Ruby Tuesday:
|Stock||Price as of 8-23||52-Week Performance||Trailing P/E||Yield|
|Bravo Brio (BBRG)||$16.07||-12.1%||19||-|
|The Cheesecake Factory (CAKE)||$33.08||+23.5%||19||1.4%|
|Darden Restaurants (DRI)||$51.45||+12.2%||14||3.2%|
|Ruby Tuesday (RT)||$6.76||-16.7%||N/A||-|
Is la dolce vita in sight for Bravo Brio? Judging by his August 3 purchase of 6,400 shares at $16.08 apiece, CEO Saed Mohseni thinks so. I’d consider taking a gamble on Bravo Brio, but I’d keep in mind that the restaurant world is filled with ghosts of chains past. Remember Chi-Chi’s? How about Howard Johnson’s?
Fool blogger Jonathan Lim has no positions in the stocks mentioned above. The Motley Fool owns shares of Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.