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

Miami, FL (June 20, 1997) -- A sure sign that restaurant stocks are cheap happened yesterday when EL CHICO <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELCH)") else Response.Write("(Nasdaq: ELCH)") end if %> announced that it has not one, but two unsolicited buyout offers. Last week they had announced that they had turned away one prospective buyer. Playing hard to get apparently worked. Now there are two more knocking at the door and the company has hit up Montgomery Securities for some marriage counseling.

Let's take a look at El Chico, quickly, before they get swept off their feet and lose their maiden ticker. They own 69 restaurants and franchise 27 others, mostly under the El Chico name. As a casual Mexican chain the financials are just awaking from a long siesta. Last year earnings fell to $0.61 a share from $0.98 in 1995 and that was before a restructuring charge.

This past quarter they showed signs of life, eradicating a $0.05 a share deficit with a $0.12 a share gain. Nice, but that was strictly based on better expense management as revenues were off and same-store-sales were also South of the Border. This is certainly not your light-speed growth story; the company actually closed a few restaurants over the last year rather than open new ones.

So, what's the lure? Well, the stock, even after it's recent buyout run-up to $9 1/2 from $6 this month is still selling for just 150% of book value and at a third of trailing 12-month revenues. While that may sound like a screaming bargain, take a look at the restaurant sector.

Edible Eight entries BERTUCCI'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BERT)") else Response.Write("(Nasdaq: BERT)") end if %> and ROCK BOTTOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BREW)") else Response.Write("(Nasdaq: BREW)") end if %> have similar valuations. Bertucci's is actually selling for less than book value. Yet the E8 stocks are showing more definite turnarounds and with actual expansion plans.

The question then is, if two are asking out the ugly sister (okay, maybe El Chico isn't a mule, but, let's just say it has a great personality) imagine the lines that may form in front of the prettier siblings. The prom is coming and the restaurant stocks haven't looked this good to bargain hunters in some time.

Case in point, APPLE SOUTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSO)") else Response.Write("(Nasdaq: APSO)") end if %> announced yesterday they were buying Canyon Cafe. The successful 13-unit casual Southwestern cuisine chain was named one of Nation's Restaurant News Hot Concepts this year. This is a pretty one. Apple South has been a bit polygamous lately, having walked down the altar with McCormick & Schmick's and Hoops earlier this year. Apple South is a pretty interesting story, emerging from a shining star in franchising Applebee's Restaurants to now being the owner of five young concepts. Scooping them up while they're cheap, taking advantage of lackluster investor sentiment,even if these are privately-held companies in Apple South's black book, has played well into Apple South's camp.

As the market continues to race to new highs, the Investors Business Daily index of 140 restaurant stocks is still lower than where it was in 1995. With that kind of apathy, the young restaurants that would normally go public in the early 1990's are finding that the best way to secure capital is to be bought out by an experienced operator. So, kudos to Apple South, and even a toast to whoever, if anyone, winds up with El Chico's hand in matrimony.

THE EDIBLE EIGHT

Earlier this week RAINFOREST CAFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %> spoke at the Piper Jaffray conference. There, as they had the day before, they assured analysts that they are comfortable with the current estimates out there of $0.15 this quarter, $0.78 this year and $1.21 next year.

Wall Street took this as news, shooting the stock up $2 3/8 on the week past $28 a share. The stock has not been this high since last December. The stock finally eclipsed the mark where analyst Lazslo Birinyi picked Rainforest Cafe as a short selection on Wall Street Weak. Is it Weak or Week? I forget. ESPN3 usually has some really exciting log-rolling at the same time the show is on.

Anyway, the stock has bounced back. It's actually up more than 20% this year, being barely edged out by the S&P 500 for 1997 performance honors. Still, South Coast Plaza opened successfully earlier this month and this weekend it's mock training time at the company's first international location in London, England. That unit, in the heart of Piccadilly, will make eight. By the end of next year heralding each of what should then be about 30 units will seem petty. The income, however, should be enormous.

But, back to today, stateside, the Edible Eight inched higher, to a new plateau. Well, just like every other benchmark except that naughty restaurant index we noted earlier. So, cheerio, gotta go. Gotta check the mail for more wedding invitations!

1997 Returns To Date:

S&P 500 +21.2%

NASDAQ +12.1%

Fidelity Sel:Food +9.7%

The Edible Eight +9.0%

IBD's Restaurants -1.8% (as of Wednesday)

The June Edible Eight

June to June 19, 1997

Rainforest Cafe <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %> +15%

Lone Star Steakhouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STAR)") else Response.Write("(Nasdaq: STAR)") end if %> +7%

Rock Bottom Rest. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BREW)") else Response.Write("(Nasdaq: BREW)") end if %> -8%

Bertucci's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BERT)") else Response.Write("(Nasdaq: BERT)") end if %> +14%

Quality Dining <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDIN)") else Response.Write("(Nasdaq: QDIN)") end if %> -1%

Coca Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> ***short*** -5%

Garden Fresh <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LTUS)") else Response.Write("(Nasdaq: LTUS)") end if %> +10%

Grist Mill <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRST)") else Response.Write("(Nasdaq: GRST)") end if %> +8%

Until next week, Digest Foolishly,
MF Edible

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