Seafood restaurant operator McCormick & Schmick's (Nasdaq: MSSR ) posted some seriously tasty numbers in its second-quarter earnings results.
Net revenue rose 16.8% year over year. Restaurants open for more than a year contributed a 2.3% increase in same-store sales. The rest of the growth came from 11 new restaurant locations, as well as five recently acquired The Boathouse locations.
Top-line growth was solid, but I found M&S's profitability performance its most impressive trait. During the conference call, management admitted that the second quarter faced a difficult environment in terms of commodity pressures; seafood and dairy prices alike were higher than year-ago levels. To offset these pressures, management used innovative measures.
For instance, chefs employed more salsas in place of dairy-based sauces. Also, menus introduced "higher-end premier" fish entrees; at least for now, customers were willing to pay up for them. As a result of these measures, restaurant operating costs as a percentage of net revenues actually declined to 83.5%, from 83.7% in the year-ago period.
Growth has been solid so far, but this ship isn't porting anytime soon. With only 73 McCormick & Schmick's in operation, there is plenty wind left in the company's sails. Management will focus development efforts to fill out existing markets and expand into new ones. Look for 50% restaurant unit growth in 2008.
McCormick & Schmick's isn't the only full-blown seafood operator in town -- among others, Darden Restaurants' (NYSE: DRI ) Red Lobster and Landry's (NYSE: LNY ) target the value end, while OSI Restaurants' Bonefish Grill is a little more upscale. Despite these challengers, and the constant threat of steak-focused locations shifting to a greater seafood mix, McCormick & Schmick's recipe appears to be resonating with customers.
Motley Fool CAPS has McCormick & Schmick's listed a prime catch, giving it the maximum five-star rating. It looks like some Fools had their bait in the right investment waters. It's time for the rest of us to start paying attention.
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Fool contributor Jeremy MacNealy didn't have his bait in the right waters -- he had no financial interest in McCormick & Schmick's or any other company mentioned. The Motley Fool's disclosure policy tips the scales.