This Week in Food and Restaurants
by Aristotle Munarriz (TMF Edible)

Miami, FL (May 16, 1997) -- Checkmate? The King has finally chosen a suitor as Burger King owner, and fomer Edible Eight entry GRAND METROPOLITAN ADS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRM)") else Response.Write("(NYSE: GRM)") end if %> agreed to merge with British distiller Guiness PLC. The new company will combine Grand Metropolitan's portfolio of subsidiaries (which includes Pillsbury and International Distillery) with the Guiness and Johnnie Walker Red labels. The new company, GMG Brands, will become the seventh largest food and beverage company in the world. Shares of Grand soared $4 3/4 on Monday to $38 7/8, but have settled down a bit since then. The stock is now at $38. A Whopper of a deal, no?

THE EDIBLE EIGHT

It was a busy week for the E8 with a big winner and loser tugging at the rope. Eventually QUALITY DINING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDIN)") else Response.Write("(Nasdaq: QDIN)") end if %> and its freefall won over LOGAN'S ROADHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDHS)") else Response.Write("(Nasdaq: RDHS)") end if %> surge after their blowout earnings and our modest wishlist fell 0.4% for the week. For the month of May we are still up a smart 4.9%, with a strong market blowing at our sails.

This week Quality Dining announced that it would divest its Bruegger's Bagels division. When the company first acquired the largest chain of bagel restaurants last year, Wall Street was enamored. Quality's stock gapped up from $21 to $25 after the news and peaked just short of $40 a share this past May. Since then investors who came looking for Quality as a bagel play have lost some serious dough.

Discontented with how Quality was handling Bruegger's, the two founders of the bagel chain, now the largest individual shareholders of merged companies, stepped down from the Quality board of directors. Bruegger's is not alone as other publicly-traded bagel eateries like EINSTEIN/NOAH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENBX)") else Response.Write("(Nasdaq: ENBX)") end if %> and MANHATTAN BAGELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BGLS)") else Response.Write("(Nasdaq: BGLS)") end if %> have lost more than half their value over the last few months.

While last month found the stock rallying when the news of a possible divestiture broke out, this time it went the other way. On the week the stock fell $2 1/2 to $5 5/8, a staggering 31% plunge into record lows.

Is there value? With the elimination of Bruegger's will come some massive charges as the company writes off the investment and closes company-owned units. That leaves the existing portfolio of Burger Kings, Chili's, Spaggeddies and Grady's restaurants, which the market had valued at more than twice the current market cap before the announced merger. The closest to a peer is U.S. RESTAURANT PROPERTIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USV)") else Response.Write("(NYSE: USV)") end if %> which is also a franchisee of Burger King and Chili's. Two differences though are that U.S. also owns quite a few Pizza Hut franchises and that the company has been a heavy yielder given its Limited Partnership and soon to be REIT status. Well, shares of U.S. Restaurant are up 12% over the last year, while Quality has lost 85% of its value. Smells like value. Is one bad call, merging with Bruegger's, worth the clearance sale?

On the more positive front, we had two companies which left earnings estimates in the dust. First, Logan's Roadhouse reported earnings of $0.26 a share. That was a far cry from the $0.22 that the analysts were looking for and the stock, fittingly, closed out the week $4 5/8 higher at $23 1/2. For the month of May, the stock has been on a tear and without its 46.9% gain, the Edible Eight would be in the negative column for the month and certainly for the year.

Another earnings buster was BERTUCCI'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BERT)") else Response.Write("(Nasdaq: BERT)") end if %> where the lone analyst following the company was looking for quarterly earnings of $0.09 a share. After the last quarter, when the company stunned the analyst on the upside, the pro had to up his 1997 target from $0.35 to $0.45 a share. Well, bring on more liquid paper and upside adjustments. The company reported earnings of $0.11 on solid unit performance. The stellar report did not move the stock but it's always a tough crowd when you're playing out of the radar's range.

Lastly, RAINFOREST CAFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %> found a new admirer when PaineWebber initiated coverage of the company with an "attractive" rating. It would seem strange that PaineWebber would upgrade a seemingly rudderless company, given that the company is searching for a new president. Maybe they know that Rainforest Cafe is so well-entrenched in its growth path that even an empty chair can steer it to success. Or, maybe they know the annual meeting is coming up next week, and remembered how the stock vaulted to new highs at last year's meeting.

Either way, I will be out to Minneapolis to catch the meeting and will bring back a thorough report of the happenings at the company in next week's update. So, drop me a line if you plan on being in attendance, as a few Fools will be there.

1997 Returns To Date:
The Edible Eight      +2.1%
NASDAQ                +4.8%
S&P 500              +13.7%

The May Edible Eight

Stock Appreciation for May-to-Date:
Rainforest Cafe <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %>        +3.7%
Lone Star Steakhouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STAR)") else Response.Write("(Nasdaq: STAR)") end if %>   +6.0%
Bertucci's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BERT)") else Response.Write("(Nasdaq: BERT)") end if %>             +4.5%
Quality Dining <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDIN)") else Response.Write("(Nasdaq: QDIN)") end if %>        -25.0%
Coca Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> ***short***      -6.3%
Garden Fresh <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LTUS)") else Response.Write("(Nasdaq: LTUS)") end if %>           -6.0%
Grist Mill <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRST)") else Response.Write("(Nasdaq: GRST)") end if %>            +14.9%
Logan's Roadhouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDHS)") else Response.Write("(Nasdaq: RDHS)") end if %>     +46.9%

Until next week, Digest Foolishly,
MF Edible

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