The next upscale steakhouse to go public is a name that meat lovers with deep pockets probably know all too well. Morton's Restaurant Group
Chasing the swanky chophouses hasn't really paid off in the past for restaurant investors. Ruth's Chris Steak House
This would be Morton's second time as a publicly traded company; it traded under the ticker symbol MRG for years until it was taken private in 2002.
This may not be the best time for Morton's to go public. It lost money in 2004, and it was in the red through the first nine months of last year. This isn't exactly a high-octane growth story; high-end steakhouses have a limited audience clamoring to pay $85 for a 48-ounce porterhouse before digging into the a la carte side dishes. In other words, Morton's may not be able to grow much past its existing base, domestically, before it starts to cannibalize sales.
That's why sales growth has been pretty unimpressive at Morton's. Sales rose by less than 7% last year to $293.8 million, after climbing just 9% higher in 2004. Most of the money being raised in the IPO will go to pay down debt, not necessarily to expand at the frenetic pace of younger public eateries.
Then again, that's also why the company is going public at a rather modest 0.8 times trailing sales. Cheap? Well, it all depends on how one defines cheap. Let's take a look at the trailing top-line multiples of publicly traded steakhouse operators.
|Smith & Wollensky||0.4|
|Lone Star Steakhouse||0.8|
As a slow grower with sloppy financials, Morton's doesn't seem like that much of a bargain anymore. The stocks with higher multiples are growing more quickly and have been consistently profitable. It will be critical for the company to shape up operations enough to widen margins and grow comps (same-unit sales rose a mere 2.5% in 2005). If not, look up Smith & Wollensky for starters -- but not for dessert.
Longtime Fool contributor Rick Munarriz isn't a chophouse snob, though he did have dinner at Morton's over the weekend -- but only because Fleming's was booked solid. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.