Three Upscale-Casual Restaurant Wild Cards You Need to Watch

One or more of these restaurant companies may be sitting on tomorrow’s next big thing.

Nickey Friedman
Nickey Friedman
Jul 6, 2014 at 11:04AM
Consumer Goods

Investors aren't the only ones these days looking for that next great restaurant idea. Step aside, fast casual. There is another red-hot genre in the restaurant space called upscale casual. Darden Restaurants (NYSE:DRI), Brinker International (NYSE:EAT), and Ignite Restaurant Group (NASDAQ:IRG) are all sitting on potential game-changing wild cards that could bring huge profits.

Brick House Tavern + Tap inside. Source:  Ignite Restaurant Group

Ignite may have discovered fire
Ignite Restaurant Group hasn't been doing all that well lately. The company owns three distinctive restaurant concepts across over 300 locations. They include a large bunch of Joe's Crab Shacks, an even larger bunch of Romano's Macaroni Grills, and just a handful of Brick House Tavern + Taps.

Last quarter, Joe's Crab Shack's same-store sales got slammed 8% after barely being in the black for the full year of 2013. Macaroni Grill's same-store sales were shot 4.1% after a 6.5% crash for the full year of 2013. The seafood and Italian concepts have had problems similar to what has happened at Darden Restaurants' Red Lobster and Olive Garden.

The star of the Ignite Restaurant Group show was its upscale-casual Brick House Tavern + Tap chain. For the quarter, same-store sales exploded 10.1% on the back of a 5.3% gain for the year last year. Ignite's solution? Change over many of the two weaker concepts into Brick House Tavern + Tap concepts and start over. It's going to take time, but slow and steady wins the race and the company seems to be focused on growing its strongest concept the most which, by the way, reminds me a lot of Yard House from Darden Restaurants.

Maggiano's inside.  Source:  Brinker International

Upgrade your chicken parm
You would think that between Ignite Restaurant Group's Macaroni Grill and Darden Restaurants' Olive Garden that maybe Italian food is not the way to go in this industry right now. However, just go a little more upscale than the usual flair, and Brinker International will show you differently.

Brinker International owns and franchises over 1,500 Chili's Grill & Bars. It also happens to own 45 Maggiano's Little Italy restaurants. Chili's Grill has actually held its own with same-store sales up, down, and all over the map while holding much promise for future gains.

Maggiano's, however, has been a slow and steady gainer now with 17 quarters in a row of positive same-store sales. Its busy season occurs in the calendar fourth quarter, when the chain saw record sales and the highest weekly numbers ever despite the challenging weather and shortened calendar for the holiday quarter.

Brinker International plans to expand this concept in the years ahead with between six and eight new locations by the end of the next fiscal year.

Give an inch, take a yard
Darden Restaurants has two really badly performing concepts but along with that it has two very promising upscale-casual concepts. Its Red Lobster branch (that it is in the process of selling) took a 5.6% hit in same-store sales last quarter and a 6% hit last year. Olive Garden did less badly with a 2.7% drop last quarter and a 1.1% drop last year. LongHorn Steakhouse showed some promise with a 2.4% increase for the quarter and a 2.7% drop for the year.

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Yard House inside.  Source:  Darden Restaurants

Whew, that's a lot of numbers. The short version: Darden Restaurants' three main concepts, which make up over 90% of the 2,207 restaurants it owns, leave a lot to be desired. Two of the tiny chains to pay attention to are the 37 Bahama Breezes and the 52 Yard Houses (both of which just happen to be two of my favorite chain upscale-casual restaurants).

While Darden's three main concepts have average annual sales per restaurant of between $3.1 million and $4.4 million, Bahama Breeze and the Yard House blow those figures away. Bahama Breeze averages $5.6 million at each place and Yard House does a whopping $8.2 million and both are climbing.

A drink from Bahama Breeze. Source: Darden Restaurants

Bahama Breeze notched a 4.1% gain in same-store sales last year while Yard House added 0.3%. Okay, that second growth number isn't that much, but at $8.2 million in sales per location I think we can give Yard House a pass especially since over the last 12 months Darden Restaurants did add eight more locations for an increase of 18%.

Gene Less, President and COO of Darden Restaurants, said on the latest conference call, "I would just quickly say, I think the Yard House is very well positioned in the market place, as strong appeal the volume in Gen X households." Perhaps Darden Restaurants will move to expand this chain more rapidly.

Foolish final thoughts
I only wish there could be a separate public company that only held Brick House Tavern + Tap, Maggiano's, Bahama Breeze, and Yard House. It seems like it would be a home run. In the meantime, it will be interesting to watch closely to see how these four develop as each or all of them could become game changers for their parent companies, depending on the potential market opportunity.