Steakhouse operators feel heat from higher costs, lower trafficSteakhouse operators feel heat from higher costs, lower traffic

Sarah Lockyer

HEATHROW FLA. —Higher food, energy and opening costs are forcing upscale steakhouse operators to temper future expectations, and a slight slowdown in sales at some brands is causing observers to wonder if the segment’s previous insulation from pressures that have hurt many casual-dining players is eroding.

While some upscale steakhouse operators continued to boast positive sales trends during the second quarter, others, like Ruth’s Chris Steak House Inc., saw a 0.4-percent downturn in same-store sales that caused the company to reduce its annual outlook for the second time this year. —Higher food, energy and opening costs are forcing upscale steakhouse operators to temper future expectations, and a slight slowdown in sales at some brands is causing observers to wonder if the segment’s previous insulation from pressures that have hurt many casual-dining players is eroding.

“It is becoming evident that Ruth’s is succumbing to some of the same traffic pressures other industry participants are facing,” analyst Steven T. Kron at Goldman, Sachs & Co. said in a report. “Home value declines…and equity market volatility—two sources of wealth for affluent consumers—could drive persistent traffic weakness.” —Higher food, energy and opening costs are forcing upscale steakhouse operators to temper future expectations, and a slight slowdown in sales at some brands is causing observers to wonder if the segment’s previous insulation from pressures that have hurt many casual-dining players is eroding.

Despite the dip in same-store sales, the Heathrow, Fla.-based company, which operates or franchises 107 steakhouses, reported an 11.8-percent increase in second-quarter net income to $5.4 million on revenues that rose 29.5 percent to $78.4 million, driven largely by new store openings. —Higher food, energy and opening costs are forcing upscale steakhouse operators to temper future expectations, and a slight slowdown in sales at some brands is causing observers to wonder if the segment’s previous insulation from pressures that have hurt many casual-dining players is eroding.

Rare Hospitality International Inc., the Atlanta-based operator or franchisor of 317 restaurants under the LongHorn Steakhouse and The Capital Grille brands, reduced its annual earnings projections mainly because of the uncertainty in beef prices, the company reported. —Higher food, energy and opening costs are forcing upscale steakhouse operators to temper future expectations, and a slight slowdown in sales at some brands is causing observers to wonder if the segment’s previous insulation from pressures that have hurt many casual-dining players is eroding.

Sales trends were positive, with LongHorn, the more midscale concept, posting a same-store sales increase of 1.1 percent for the second quarter, and The Capital Grille, the upscale brand, posting a 6.9-percent jump. In reducing its guidance, the company said it expects same-store sales to be flat to up 2 percent at LongHorn and up 3 percent to 4 percent at Capital Grille, more muted than past results. —Higher food, energy and opening costs are forcing upscale steakhouse operators to temper future expectations, and a slight slowdown in sales at some brands is causing observers to wonder if the segment’s previous insulation from pressures that have hurt many casual-dining players is eroding.

Morton’s Restaurant Group Inc., the Chicago-based operator of 74 Morton’s steakhouses, boasted a second-quarter same-store sales increase of 4.4 percent for its namesake chain. —Higher food, energy and opening costs are forcing upscale steakhouse operators to temper future expectations, and a slight slowdown in sales at some brands is causing observers to wonder if the segment’s previous insulation from pressures that have hurt many casual-dining players is eroding.