Restaurant Resurgence Reaches Outback : Company’s Shares Climb 39%, Despite Only Minor Changes

The marketing theme at Outback Steakhouse Inc. is all things Australian. Even its ticker symbol is OSSI. But in recent years, “down under” applied too often to the stock’s price as it lagged both its mates and the market overall.

Not so lately. Outback’s shares, boosted by steady gains in the company’s performance, are up 39% since early October and are well ahead of the broader market.

Yet Outback is the first to note that the rebound doesn’t so much reflect dramatic changes in the company’s strategy, but rather a recovery in the overall restaurant industry that’s rewarding popular, efficient operators like Outback.

“We didn’t do anything staggering,” said Robert Merritt, Outback’s chief financial officer. “But we’re getting more than our fair share of the recovery.”

Analysts agree. Outback and others “that are executing their concepts the best, and meeting the consumer’s demands, are seeing that consumer come back more often now,” said analyst Andrew Barish of the investment firm BancBoston Robertson Stephens in San Francisco.

Indeed, the industry’s renewed strength also is lifting stocks of some other casual-dining companies, among them Darden Restaurants Inc., operator of Red Lobster and Olive Garden, and Consolidated Products Inc., which owns the Steak n Shake chain in the Midwest and Southeast.

Outback’s earnings would have been even higher in 1998 but for a surge in the price of butter last fall. Because the chain uses butter not only for table service but also in grilling its steaks--another Australian touch--and many other foods, it goes through 1 million pounds of butter every month.

The price jump nicked a dime off Outback’s earnings per share last year, but even so, analysts expect the chain to post a 20% gain in profit for 1998 (after excluding one-time charges taken the prior year).

They also expect Outback to report an 18% gain in 1998 revenue, to nearly $1.4 billion, and systemwide sales--that is, including its franchises’ sales--of nearly $1.7 billion.

Tampa, Fla.-based Outback operates or franchises 537 restaurants of the same name, along with 64 Carrabba’s Italian Grill restaurants, in 43 states and 21 countries, including Brazil and South Korea. There are more than 36 Outback Steakhouses in California, but the Carrabba’s chain is east of the Rockies.

The most telling indicator of Outback’s resurgence is the “same-store sales” for its namesake restaurants--that is, sales at outlets that have been open at least a year.

Beginning in 1994, Outback’s same-store sales gains began shrinking and then disappeared altogether. But they began rebounding in late 1996, and in the third quarter of 1998, the company reported a sales gain of 5.5%--its seventh straight quarterly improvement and its biggest increase in five years. Carrabba’s has also been posting solid sales gains lately.

Which is why Outback’s shares have climbed in recent months. The stock rose an additional 13 cents a share Wednesday, to close at $35.38, on Nasdaq.

Outback, under the direction of Chief Executive Chris Sullivan, is widely viewed as a good casual-dining steakhouse that sells generous portions of tasty food at reasonable prices. The Australian theme is pervasive both in Outback’s advertising and in its restaurants, where the adornments include boomerangs and surfboards.

The company is also known for requiring its managers to sign five-year employment pacts and for prodding them to buy 10% ownership of their restaurants, both to boost the managers’ incentive and to reduce their turnover.

And though it’s made no huge changes, Outback has made a few adjustments lately that helped fuel its rebound.

The company tweaked its menu, introducing new versions of steak and chicken, and adding lobster tails and crab legs to complement the beef dishes. Also, simple changes in the layout of its menu boosted sales of appetizers. Outback has also shifted more of its advertising dollars to national cable TV outlets, promoting the chain in several major cities for the first time.

But Outback is back mainly because of the improved economics of the U.S. restaurant industry.

A rash of new openings in the mid-1990s created a restaurant glut that made it even harder than usual to generate repeat business. “People were building restaurants faster than people wanted to go into them,” Merritt said.

But in the last 18 months, Barish said, “we’ve had a slowdown in new restaurant building,” and so Outback and others “that are executing their concepts the best . . . are seeing the consumer come back more often.”

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Up the Food Chain

Outback Steakhouse’s shares have risen in recent months in response to gains in the chain’s performance and in the restaurant industry overall.

Daily closes since Sept. 1:

Wednesday: $35.38