Homey Steak

Upscale steak houses feel the economic pinch

Comments (0) By Mark Stuertz Thursday, Dec 14 2006

Shareholders of Wichita-based Lone Star Steakhouse & Saloon approved a cash buyout late Tuesday by Dallas-based Lone Star Funds for $27.35 a share, which means Lone Star Steak will now officially emanate from the Lone Star State.

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The price is a boost from the contested offer of $27.10 Lone Star Funds floated last August and values the company—which operates 217 Lone Star Steakhouse, 15 Sullivan's, five Del Frisco's, 23 Texas Land & Cattle and one Frankie's Italian Grille restaurants plus 17 more Lone Star and one Del Frisco's restaurants under license—at $586.1 million.

That's a $5.5 million bulge above the August offer, which was pooh-poohed as too low by investors such as Barington Capital Group, which held a 9.6 percent stake in the company. But after Lone Star let Barington peek at the books, they pounced on the extra quarter per share offered by Lone Star on November 30. The company was afflicted by several adverse long-term trends sending comparable Lone Star Steakhouse sales tumbling 9.4 percent in the third quarter and 9.9 percent in the four weeks ending October 3. Lone Star says the performance anemia stems from a casual dining sector squeeze resulting from demographic shifts, higher construction and renovation costs, pinched consumer disposable income because of higher gas prices and interest rates, oversaturation of the casual dining segment and the expected oversaturation of the upscale steak house segment (see below). Barington also savaged Lone Star's marketing efforts, especially its costly sponsorship of a NASCAR racing team and the scrubbing of its coupon program. The NASCAR hit: Lone Star sunk some $1.39 million in the third quarter alone for its NASCAR sponsorship and some $4.3 million in total sponsorship costs through last October. Its rookie driver, David Stremme, finished 33rd in the 2006 Nextel Cup standings. That's gotta hurt.

Big Apple steak stuck: New York-based Smith & Wollenskyis shuttering its 43,000-square-foot steak house on December 31. No word on its New Year's Eve party format, but the company does say it will incur some $3.2 million to button the place up. "The company decided to close S&W Dallas because it was unable to achieve a level of income from operations that was in line with the company's expectations," S&W said in a statement. The company is also putting the building, (once a Humperdink's) with an assessed value of $3.74 million, on the block, and sources say several Dallas operators are vying for the Dallas North Tollway spot... Dolce Oliva, the quasi-Italian restaurant opened in 2003 in the Preston-Royal space once home to Roberto's and Rodolpho's for some 20 years before that, was recently locked up due to delinquent lease payments. Dolce Oliva featured the fare of chef Los Akins (Moonshine Café, PoPoLos).