Make Your Portfolio More Upscale with Fine Dining

Make Your Portfolio More Upscale with Fine Dining

Del Frisco's Restaurant Group reported a mixed plate of sales trends for two of its restaurant concepts on Oct. 9, 2013. Its results give you a glimpse into two different areas of the steak restaurant industry. Sales took off among fine-dining, upscale, and business customers, while they went in the opposite direction among weekend casual diners. It may be time to trade in your casual dining stocks and aim more upscale.

Here's to fine dining
Del Frisco announced that companywide sales were up 13.2% to $54.2 million. While a large part of this gain was due to the addition of new restaurants, its fine-dining Double Eagle Steak House chain alone showed an impressive 4.4% increase in same-restaurant sales. It was the 15th quarter in a row with an increase. However, its casual Sullivan's Steakhouse chain reported the opposite: it showed a 5.9% plunge in same-restaurant sales.

Fine-dining was clearly a big winner, while the more casual guests decided to stay at home. In fact, each of its nine individual Double Eagle Steak House restaurants open for over a year experienced positive growth in traffic. The company theorized that the reason the Sullivan's Steakhouse restaurant performed poorly wasn't a bad economy, but rather a consumer that chose to spend increased income on "cars, home remodeling projects or durable goods," and not on dining. The company's weekly business customers have held steady, while its weekend warriors have disappeared.

Steak biz peers
Bloomin' Brands
has a similar story to tell. It owns and operates the Outback Steakhouse chain, along with the fine-dining Fleming's Prime Steakhouse and Wine Bar chain. Its Outback sales did well last quarter, with a 2.8% increase among same restaurants year over year. Its fine-dining steak chain was the real star, though; Fleming's saw a 3.8% increase in same restaurant sales for its 13th quarterly rise in a row.

Ruth's Hospitality Group
owns and operates the fine-dining Ruth's Chris Steak House chain. It, too, is seeing a surge in its same-restaurant sales. Last quarter they increased 4.6%, which was also its 13th quarter in a row of positive gains. In the most recent conference call CEO Michael O'Donnell stated, "Our sales and traffic trends, which had been very encouraging for almost 4 years running and, of course, our bottom line performance, which has resulted in significant earnings growth since 2010." The company forecasted continued growth for the rest of the year as the third quarter was running at "low- to mid-single digits" in percentage growth.

Not all casual steak is suffering
On the flip side, Texas Roadhouse appears to be bucking the fine-dining-only growth trend. While it is more casual-oriented than its fine-dining peers, that didn't stop it from beefing up its same-restaurant sales. Last quarter it reported a 4.5% rise in line with Del Frisco's fine dining, Ruth's Chris, and Fleming's. That may be a bit unique to Texas Roadhouse, which has given up promotional discounts.

Final foolish thoughts
The core strength for Del Frisco is coming from its fine-dining steak restaurants, while its casual steak joints act as a drag. To scale up your portfolio from medium to well done in light of industry trends, consider a pure play on fine dining. Ruth's Hospitality Group is the only publicly-traded pure fine-dining steak company. While others such as Del Frisco and Bloomin' Brands also own fine-dining concepts, weaker results from their casual concepts may drag down their overall earnings. Watch the industry trends to stay assured that Ruth's will continue to dine on growth.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Texas Roadhouse. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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