When I last wrote on O'Charley's (NASDAQ:CHUX), the company's revitalization initiative, Project RevO'lution (which oddly seemed to be lacking in revolutionary-level changes), did little to convince me that this enterprise was a sound long-term investment. My colleague Seth Jayson has also written off the restaurateur for its recent track record of declining profitability.
Is "bleh" a word? If not, it should be, because that's a perfect description of the company's latest fourth-quarter results and conference call.
The average check per transaction in the quarter was up a robust 8.1%, which sounds like great news, right? But then, we also find that customer traffic declined 9.7%, leading to an overall drop in comparable same-store sales of 2.4%. This decline is even more discouraging when you remember that comps were negative in the year-ago period as well.
Management admitted that the sharp divergence between average check and customer count was expected. One of the company's recent efforts is the removal of its Kids Eat Free program, which will be fully phased out in 2008. Removing this program, as well as scaling back on other coupon usage and price promotions, was enough for more than a few families to take their appetites elsewhere.
Again, the positive side of this strategy is that the average check increased. And if management can get customer traffic going in the right direction again with fewer promotions and more enticing products, then the company's profitability should significantly improve.
"If" is the operative word, however. Luring customers with a differentiated product -- to distinguish it from the likes of Applebee's (NASDAQ:APPB), Ruby Tuesday (NYSE:RI), and Brinker's (NYSE:EAT) Chili's -- will continue to be the company's most pressing challenge. Management is hopeful that a more lively menu mix and a refreshed store design can meet this challenge.
In the call, CEO Gregory Burns said the company's turnaround efforts are "on track," but until this Fool sees a concrete turnaround in its performance, I'll continue to take my investing appetite elsewhere.
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.
