Yesterday we digested the impact of high meat prices on Ohio-based breakfast baron Bob Evans Farms (NASDAQ:BOBE). Today, we're looking at it from a slightly different angle: that of Lone Star Steakhouse & Saloon (NASDAQ:STAR), which said in a press release last night that sharp increases in meat costs are expected to hack a sizable hunk of profits right off the income statement in the second quarter.
Lone Star said that meat costs, which make up some 60% of its cost of sales, rose nearly 17% over last year's Q2 for the first eight weeks of the quarter. That trend, the company said, suggests that Q2's cost of sales (as a percentage of revenue) will be as much as 3% higher than in Q1 -- and that's on top of the margin pressure it generally sees in Q2. (The first and fourth quarters were the company's biggest in 2003 in revenue terms.)
What the company doesn't really discuss in its press release, however, are same-store sales -- beyond to highlight this quarter's eight-week numbers -- all positive -- and to say that Q2 will be hurt by the fact that Father's Day falls in Q3, rather than Q2, this year. While that may be, it's still worth pointing out the differences at Lone Star between this year's same-store sales growth through the first eight weeks of the quarter and the final figures for last year's Q2.
| Chain | Q2 2004 | 2003 |
|---|---|---|
| Lone Star Steakhouse Saloon | 1.0% | 2.2% |
| Sullivan's Steakhouse | 6.3% | 7.5% |
| Del Frisco's Double Eagle Steak House | 30.8% | 6.7% |
| Texas Land & Cattle Steak House | 11.8% | N/A |
The big number is the Lone Star figure: All but 40 of its 291 company-owned and operated outlets carry this brand. (Licensees manage another 14 Lone Stars and one Del Frisco's.) And so while it's nice to see the numbers up at the Del Frisco's chain, it makes up the smallest part of Lone Star's business, by store count, of all four. And Texas Land & Cattle was purchased out of bankruptcy in January.
I'm not suggesting that meat prices aren't legitimately dogging Lone Star. After closer inspection, however, it appears there's more to the story.
Want to read more about the restaurant business? Check out:
- Chang's Cash Is the Thing, by Rick Aristotle Munarriz
- Eating Up the Diners, by W.D. Crotty
- Buffalo Wild Wings Is Blazin', by Philip Durell
- Buying the Sizzle and the Steak Burger, by Jeremy MacNealy
Fool contributor Dave Marino-Nachison doesn't own any of the companies in this article.
