Morton's Chewing Thru Toughness

Tags: mrt
4 Dec 11:59pm
Posted by ZacksResearch
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Morton's Restaurants Group (MRT) was founded in 1978 in downtown Chicago by Arnie Morton, Playboy's former director of food and beverage, and by Klaus Fritsch. Since then, Morton's has grown to be the world's largest company-owned upscale steakhouse chain, with 80 Morton's Steakhouses in 68 major cities across the U.S. and Puerto Rico, along with five international locations Toronto, Vancouver, Hong Kong, Macau, and Singapore.

Morton's reputation for serving world-class food and hospitality will remain strong and drive sales longer-term. Indeed, when the economy improves in the late 2009-2010 time frame, Morton's can grow earnings at a CAGR [compound annual growth rate] of 10%-13% by adding 4 to 7 new units per year (5%-8% growth) and growing same-store sales by 3%-5% per year through incremental Bar 12-21 revenue, increased boardroom utilization, and modest price increases.

Currently, however, the recession is eroding traffic and earnings. We've noted in the past that Morton's extreme reliance on corporate spending (80% of diners are on expense accounts), and moderate financial leverage will work in reverse as the economy slows down.

With operating cash flow declining into the red, MRT has used debt (42% of capital) to open new units, refurbish others and, incredibly, buy back stock. We expect a continued rise in leverage, fueled by negative free cash flow.

Read the full analyst report on MRT




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