Before I start on Outback Steakhouse's
Outback Steakhouse's quarterly report only contains its income statement. That's a disgrace. In fact, I only know of one other company that provided only its income statement in quarterly releases. It was called Enron. That's not good company to be in from a disclosure perspective, folks, and though cash and debt positions were discussed on the conference call, it's not enough. What's puzzling about this is that Outback's balance sheet has a history of being really solid. If I were them, I'd want to prance it out when everyone's paying attention.
Outback turned in a revenue increase of 17.3% over a year ago and earnings growth of 14.6%. Some of this is reflected in the fact that the company has 10% more stores than it did a year ago, but not all of it. In particular, Outback's Carrabba's Italian and Bonefish seafood restaurant themes are stars. Outback expects to open 13-15 additional Carrabbas (a 10% increase) and eight to nine Bonefish Grills (a 27% increase) in the fourth quarter alone. That's unbelievable growth.
You might think that such enormous capital contributions (I estimate that startup costs for each restaurant averages $2 million) would mean that Outback is scrounging for all the cash it can muster. You'd be wrong. Outback increased its dividend yesterday by 8%, and its cash position is strong enough that it is able to choose whether to self-finance new stores or to borrow. Contrast this to the anemic results posted by rival Darden Restaurants
Of concern was the disclosure that Outback would have to restate earnings for prior years due to the SEC taking issue with the way Outback accounts for its company-employed partners. Outback has a fairly model program that requires managers to buy in as minority partners, but the SEC determined on Monday that because this relationship is based upon employment, there ought to be a compensation expense involved.
In the conference call, Outback management said that the SEC had given approval for this treatment in the past, and that they believe this is representative of a shift towards conservatism at the agency. In either case, the amounts have no bearing on the company's cash generation, and shouldn't be considered a big deal.
I find it interesting that the SEC can make a stand on a minority interest being a compensation expense in the absence of cash outlay, but that there is any question at all about stock-based compensation being an expense as well. Ahem.
In the past quarter, Outback repurchased 954,000 shares -- about 1.5% of the float -- on the open market, reducing its share count. Given its aggressive development program, its buybacks, its increased dividend, and its hefty cash position, the greatest impression I gain from Outback is that the company is having difficulty figuring out what to do with all of the money it's making. There are worse problems to have.