The excuses are starting to get a little old at Lone Star Steakhouse (NASDAQ:STAR). Back in May, the casual steakhouse chain warned that higher beef prices would hurt margins. Now, it is laying the blame of a 1% slide in second-quarter comps at its signature concept on the shoulder of dear old dad.
Lone Star is right on both counts, though. While beef prices tend to spike this time of year, the hikes have been brutal this time around. And, thanks to the company's eclectic fiscal calendar, Father's Day just missed the company's book closing date of June 15.
So the company isn't making anything up. I even went back to see if it was playing fair and came back pleasantly surprised to see last year's second-quarter release point out that the inclusion of Father's Day in 2003 pumped up sales by $1.8 million (the same amount it is using to explain this period's shortfall). Even this year's first-quarter earnings release explained how New Year's Day sales helped the cause.
I realize that Lone Star isn't the only one to break off its fiscal year into three 12-week periods followed by a longer 16-week chunk, but it certainly does complicate things when you're toiling away in a sector driven by holiday-specific foot traffic.
However, maybe the excuses are just a smokescreen for a company in an industry that shouldn't be having any excuses in the first place. Business should be booming for Lone Star. The economy is improving, low-carb diets are kind on the carnivores, and higher meat prices can be a blessing. After all, consumers are seeing these increases at the grocery store, too. If that's influencing purchasing decisions at the supermarket level, it should only be driving up demand for a steakhouse niche that ought to be granted the leeway to increase prices accordingly.
But don't take my opinion for granted. Let me show you the beef. Smith & Wollensky (NASDAQ:SWRG) saw its second-quarter comps rise by 9.3%. But the problem isn't really with Lone Star. It's all about the tablecloth -- or lack thereof.
Outback Steakhouse (NYSE:OSI) reported relatively flat same-unit sales at its namesake chain last month. As a matter of fact, Lone Star, Outback, and RARE Hospitality (NASDAQ:RARE) have all been posting significantly higher comps at their smaller upscale concepts than they have at their more laid-back flagship concepts.
Last week, Outback revealed that it hadn't jacked up its menu prices since May of last year. Given the higher cost of sales, the fact that the casual steakhouses are reluctant to pass these increases on to the consumer clearly indicates that the chains feel vulnerable. So be a picky eater in this sector.
Have you been hitting more upscale steakhouses lately? Can you really keep a low-carb diet going by eating out at these places, or is it better to count your intake at home? All this and more -- in the Low-Carb Way of Life discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz wonders if the roadhouse decor of scattered peanut shells would look good on top of a fine linen tablecloth. He does not own shares in any companies mentioned in this story.
