It's Raining Again (Fool Plate Special) August 3, 1999

An Investment Opinion

It's Raining Again

By Rick Aristotle Munarriz (TMF Edible)
August 2, 1999

Theme restaurants! Those two words often elicit a round of laughter from the jaded. With shares of Planet Hollywood (NYSE: PHL) trading for less than admission to a second-run theater, it's easy to see how big frills in an eatery setting can lead to even bigger disappointments once the honeymoon is over. Eatertainment is dead. Or is it?

Shares of Rainforest Cafe (Nasdaq: RAIN) have trekked 45% higher over the past month. Unlike its tinsel-troubled peer, Rainforest Cafe has remained consistently profitable through these sentiment-lean times. However, like Planet Hollywood, the global chain of 35 rain forest themed restaurants had been mired in a same-store sales slump that brought earnings growth to a screeching halt.

With so much overhead at stake, from the high amortized costs of setting up a unit to the hefty leases, it is easy to see how double-digit comp declines can savagely eat away at what once was industry enviable margins.

That is why Rainforest Cafe investors were relieved when the company reported earnings last month. While the $0.16 a share showing was in line with estimates, the trend was clearly a friend. From a ghastly 18% decline in same-store sales for the month of April, the company trimmed that down to a 7% letdown in June. The stock remains palatable this morning, up to $7 1/4, on news that the July same-store sales decline was whittled down even further -- to just 4%.

It has been a summer of welcome news for the company whose stock still trades at less than a third of the mid-twenty dollar highs set back in 1997. In last week's issue of Nation's Restaurant News, the company overtook Cheesecake Factory (Nasdaq: CAKE) as the country's leader in sales per unit. After a website overhaul, the company has opened a new online store. Icon units in Disneyland and San Francisco, where tourists prove less fickle than locals, are on the way. The jungle is rumbling again -- but will it last this time?