Theme restaurants face a tough 1999 - Analysts
NEW YORK, Dec 28 (Reuters) - Theme restaurants sprouted like wild grass in the
mid-1990's, serving routine fare of burgers and salads in exotic surroundings, but the novelty
is wearing thin and analysts expect 1999 earnings to be paltry.
Shares of theme restaurants such as Planet Hollywood International Inc. (NYSE:PHL - news) and Rainforest Cafe
(Nasdaq:RAIN - news) have skidded as they have struggled to bring back repeat customers.
''People come once to a theme restaurant to experience it and are willing to pay the extra money to eat there at least once, but
the likelihood that they come back is less and less,'' said Chris Schroeder, an analyst with Ladenburg Thalmann who follows
Rainforest Cafe.
Rainforest's stock closed just above its 52-week low at 5-5/16, down 1/16 on the Nasdaq stock market Monday.
''Generally, the theme restaurant model is tired and unless the food quality gets better,'' the companies will face a tough
environment, said Arnold Ursaner, an analyst with White Plains, N.Y.-based CJS Securities.
Rainforest, based in Hopkins, Minnesota, says its menu is a huge focus and big part of its return business.
''I think we're different because we have a universal appeal, focused more on family and on nature,'' said Jean Smith, head of
Rainforest's public relations.
According to Rainforest's latest customer satisfaction survey, conducted in July, 57 percent of the roughly 13,000 customers
polled from its 21 U.S. and seven international cafes were tourists.
On a four-point scale, the company said it scored a 3.6 in overall customer satisfaction.
Ursaner, who has followed Planet Hollywood since its initial public offering in 1996, said, ''This company is struggling, their
financial situation is eroding badly, and they have consistently failed to meet their robust expectations, time after time.''
Ursaner said he has had a sell rating on the stock for well over a year, but can only make a general guess as to the earnings
outlook.
Orlando, Fla.-based Planet Hollywood's stock closed down 1/8 to 2-1/2 on the New York Stock Exchange.
''Visibility of this company's plans is very low and my guess of a loss of ten cents a share in the fourth quarter of 1998 is
predicated on a plan that hasn't been articulated by the company,'' Ursaner said.
A more defined plan by Christmas was expected, but the company has put off filling in analysts until mid-January of 1999.
A representative from Planet Hollywood was not immediately available to address the analyst comments.
According to Ursanor, Planet Hollywood's target market might have to be a local or smaller market, ''and that is just going to be
a brutal undertaking because they are huge facilities and you need a lot of people.''
Schroeder, who has a long-term buy on Rainforest Cafe, said, "I think there is some investor concern out there because they
have pre-announced some negative results this year and people are wondering how far down they might go.
''In 1999, growth in results is going to be based on new restaurants rather than comparative store sales,'' Schroeder said,
adding, ''but in general I think there will be a slowdown in growth (of new establishments).''
Although Rainforest reported flat third quarter earnings, Michael Smith, restaurant analyst with Fahnestock & Co., has a
positive outlook and a buy rating on the company.
''If they earn the 64 cents we predict for this year and the estimates of 85 cents for 1999, taking into account the negative
comparative store sales, the company's balance sheet is strong and it will allow them to weather a storm for at least 18
months,'' Smith said.
''They are more family oriented, but the problem in general is the industry is having trouble developing a brand. Once you're in
the door, you can't tell the difference. You can't reinvent the garden burger,'' Smith added.
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