Diners Expect to Tighten Belts. Should Casual Chains Be Worried?

A recent consumer survey suggests diners plan to cut back in 2014, and this could have an impact on casual-dining chains.

Mar 16, 2014 at 11:00AM

A recently reported survey conducted by AlixPartners found consumers in 2014 intend to spend less on dining out. AlixPartners is a global business-advisory firm. Its recent North America and Food Service Review included a survey conducted in January.

In sum, the survey found that 29% of food-loving Americans expect to fork over 9.1% less per restaurant meal in the coming year. Diners spent $14.91 per meal in 2013. So the expected belt tightening could bring anticipated spending down to $13.55 per meal in 2014.

The question remains as to what's behind the anticipated belt tightening, however. It could be due in part to the persistently weak economy in 2013. Then again diners might be considering portion control in an effort to improve their eating habits. Be that as it may, the recent financial reports of a number of casual- restaurant chains do not foresee lower sales or earnings figures.

This includes casual eateries like The Cheesecake Factory (NASDAQ:CAKE), Buffalo Wild Wings (NASDAQ:BWLD), and Texas Roadhouse (NASDAQ:TXRH). In fact, each of these casual chains plans on opening new restaurants in the coming year along with serving up more sales and earnings growth.

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The Cheesecake Factory reports sweet results
Cheesecake Factory reported fiscal fourth-quarter results on Feb. 12. Revenue increased 2.2% to $475 million. While same-store sales rose a marginal 0.9%, the chain said that figure would have been 1.6% considering the impact of the harsh winter storms.

Moreover, same-store sales have risen like cream to the top for the last 15 quarters. Even more impressive is the Cheesecake Factory's tasty adjusted net income -- up 38% to $50.7 million, or $0.57 per share. Meanwhile the company continues to gain market share, and new restaurants have been outperforming existing restaurants.

Cheesecake Factory currently operates 185 locations (which includes The Grand Lux Cafes). Going forward the company plans to open 13-17 new locations in the coming year -- an increase of 7%-9%. Cheesecake Factory also has its sights set on the international market.

Finally, the casual chain anticipates continued growth in sales, same-store sales, and earnings per share. And it has a plan to bolster earnings with stock repurchases. In 2013, the company repurchased $210 million worth of stock.

So it does not appear Cheesecake's diners plan on skipping dessert.

Buffalo Wild Wings' earnings continue cooking
Buffalo Wild's fourth-quarter report on Feb.4 was highlighted by revenue growth higher than the industry average of 5.4%. Revenue was up by 12.4% compared to the same quarter a year ago. Furthermore, net earnings rose by 24.9% to $20.8 million from $16.7 million, and earnings per diluted share increased 23.6% to $1.10 from $0.89.

For the 2013 fiscal year the hot and casual chain's earnings came in at $3.80 compared to $3.06 in the previous fiscal year. The company's net income was also hot -- up by a spicy 24.9% compared to the same quarter in the previous year -- rising from approximately $16.7 million to $20.8 million.

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The current share price of about $149 may be a bit too hot to handle for some investors, and this level was driven by a spike of about 79% during the past year. The question remains as to whether the share price will continue cooking at this level in 2014. That being said, Buffalo Wild's guidance calls for additional helpings of earnings.

In fact Buffalo Wild's CEO and President Sally Smith remarked in part:

We continue to evolve Buffalo Wild Wings as a vibrant and strong brand. We recently achieved a significant milestone with the opening of our 1,000th location. In addition to continued unit growth, net earnings will be driven by same-store sales momentum and continued operational diligence. We reaffirm our 20% net earnings growth goal for 2014.

In other words, Buffalo Wild's diners are more likely to be pushing their chairs back from the table to give themselves room rather than tightening their belts.

Texas Roadhouse brings the beef with a side of dividends
Texas Roadhouse's fourth quarter saw diluted earnings per share rise to $0.24 from $0.19 in the prior year period. Comparable-restaurant sales also kept cooking -- up by 2.1% at company restaurants and 4.5% at its franchises.

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For the year, diluted earnings per share were up 13.2% to $1.13 from $1 in the prior year. Comparable-restaurant sales increased 3.4% at company restaurants and advanced 4.3% at franchise restaurants, while 26 company and four franchise restaurants were opened.

And Texas Roadhouse management reiterated its 2014 guidance, which includes positive comparable-restaurant sales growth, another 25 to 30 company restaurant openings as well as low ("single digit") food-cost inflation.

But the tastiest treat for investors is income, as the Texas Roadhouse posse announced on Feb. 20 the payment of a quarterly cash dividend of $0.15 per share of common stock. This is a 25% increase from the cash dividend of $0.12 per share of common stock declared during each quarter of 2013.

At the end of the day, Texas Roadhouse diners and investors will not be asking, "Where's the beef?"

The last course
Whether or not the AlixPartners survey is accurate remains to be seen. This could be a matter of diners looking back on 2013. While the adage past performance is not indicative of future results is always on the table, the forward-looking guidance of each of these casual-dining chains indicates diners will not be trimming their waistlines any time soon. And this is a good recipe for investors with a long-term view.

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Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and Texas Roadhouse. The Motley Fool owns shares of Buffalo Wild Wings. 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.

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