Morton's Outlook Bodes Well For Upscale Restaurant Demand

NEW YORK (Dow Jones)--A rosy outlook from Morton's Restaurant Group Inc. (MRT) late Wednesday shows demand is starting to return to the upscale restaurant segment and corporations may be starting to loosen their purse strings when it comes to business lunches and other discretionary spending too.

The restaurant company projected current-quarter profit and full-year earnings and revenue above analysts' expectations, while adding it began seeing a modest increase in same-restaurant revenue beginning in December, which carried into January and February.

Though consumer confidence has continued to struggle, retailers from restaurants to home-improvement companies have seen sales pick up in the last few months as the economy starts to turn around and consumers cautiously start spending again.

Morton's operates upscale steakhouses under the name Morton's of Chicago, as well as other restaurants. The company suffered last year as luxury consumers cut back and as the recession sparked downturns in business travel, conventions and entertaining. The company does a big portion of its business through expense-account purchases and business travelers.

A restaurant-spending survey from RBC Capital Markets published last week showed consumers planning to eat out at restaurants more often and at home less frequently, and said consumers are trading up more, skipping beverages less and ordering more expensive meals more often. Guest frequency is also improved, the survey said.

The outlook, and particularly the hints of better same-restaurant sales in the current quarter, boosted shares of Morton's and fellow restaurant operator Ruth's Hospitality Group (RUTH), which operates upscale restaurants including Ruth's Chris Steak House. Morton's shares were recently up 5% to $4.61, while Ruth's, which traded below $1 as recently as November, hit a high not seen since September 2008, rising $8% to $4.18.

Though Morton's is up against easy same-restaurant sales comparisons from a year earlier, analysts at Wells Fargo said they're encouraged by improvement into the first quarter, "which appears to reflect a pick up in weekday trends resulting from increased business travel."

The company's overall results for the fourth quarter didn't see such a boost.

Morton's posted a loss of $68.1 million, or $4.28 a share, compared with a year-earlier loss of $8.1 million, or 51 cents a share. Excluding items, such as a $30 million write-down, earnings from continuing operations fell to 25 cents from 29 cents. Revenue declined 9.4% to $79.2 million. Analysts polled by Thomson Reuters expected earnings of 24 cents and revenue of $81.1 million.

Same-restaurant sales fell 12% for the fourth quarter, which had an extra week compared with a year earlier.

A recent survey of 1,389 chief financial officers in the U.S. conducted by Duke University and CFO Magazine showed expectations of increased capital spending over the coming year as the economy and confidence continue to recover, which could lead to businesses loosening allowing more discretionary spending on items such as business lunches, benefiting Morton's and Ruth's.

-By Kerry Grace Benn