Restaurant analysts think the steakhouse segment is great place to invest, and investors followed this advice last year by snapping up shares of both the Ruth's Chris and Texas Roadhouse IPOs. It will be interesting to see if their enthusiasm carries over to the Morton's offering. The company finished in the red in 2004, and filings with the Security and Exchange Commission show that Morton's didn't quite break even over the first nine months of 2005, either. As for future growth, Morton's is the kind of clubby, old-school steakhouse that flourishes in areas where expense-account and business-related dining are big. Morton's already operates 69 restaurants in 60 cities that meet these criteria. It's hard to envision where significant future growth will come from.
So who's going to buy Morton's shares? Probably investors who make note of some of the other numbers revealed in the SEC filing. The check average at a typical Morton's is $86.25, average unit volumes are slightly north of $4 million and operating margins clocked in at 16.4 percent. All 69 restaurants are company owned.
Once recapitalized via the IPO, there's a lot to work with here, and cash flow for future ventures would seem to be abundant. Hey, not every restaurant chain has to expand to 5,000 units to earn a solid return for its investors. If things work out as planned, Morton's has "cash cow" written all over it
The exact share price and timing for Morton's IPO hasn't been announced yet. Wachovia Securities, which handled the Ruth's Chris IPO last August, is the lead underwriter for Morton's.
While it's hard to see where booming growth in the fine dining steakhouse segment would come from, the fast casual burrito business still seems to be on fire. Chicago-based Technomic, Inc. says that Chipotle's sales rose 34 percent in 2004. The company finished the year with 400 restaurants and rang up sales of $430 million. Average unit volume is $1.2 million and growing, the check average is $8.50. Year-end numbers aren't available yet, but Chipotle was on track to add 100 restaurants during 2005. If you're looking for soaring growth in the restaurant industry, this is where you start.
So why is current owner McDonald's spinning it off? The idea is that doing so would provide funds to accelerate Chipotle's already-rapid expansion while freeing up McDonald's leadership to concentrate on its core hamburger business.
"It will fuel growth for this meaningful and emerging fast casual brand," McDonald's C.E.O. Jim Skinner says. "We believe this action will highlight Chipotle's performance and unique characteristics which are currently overshadowed by the larger McDonald's global business," he said. "In addition, it will optimize Chipotle's potential and create value for McDonald's shareholders."
McDonald's owns 92 percent of Chipotle and plans to spin off a minority stake in the company. Likely timing of the offering is the first quarter of 2006.
British chef Ramsay hasn't signed on the dotted line yet for his IPO, but it sounds like he's leaning that way. "We'd be very stupid not to think about it," he said in an interview with Square Meal 2006, a newly published guide to London restaurants. "The level of interest we got on the back of publishing our accounts last year was phenomenal. So of course I'm interested in the idea of floating." 2004 saw Gordon Ramsay Holdings--eight restaurants plus other ventures, like his soccer outtakes DVD and his Hell's Kitchen TV series in the U.S.--made nearly a four-million-pound profit on total sales of 31 million pounds. Ramsay owns 69 percent of his company, so he's got plenty of money coming in whether he goes public or not.
But he stands to cash in mightily if he does. Analysts told the London Times that an IPO of Ramsay's company would yield 50 million pounds, making the chef's personal stake worth about 39 million pounds. Each British pound was worth $1.73 U.S. at the time of this writing, so Ramsay would be rolling in dough if the deal were to go down.
Yet self-enrichment wouldn't be his primary goal. He's got money; what he wants is working capital.
Gordon Ramsay Holdings currently ranks ninth on Britain's list of fastest-growing private companies. Ramsay has gone on record as wanting his company's sales to hit 100 million pounds in the next couple of years. That's why he gets involved in so many television shows (Hell's Kitchen in both the UK and the US; The F Word--hey, it stands for food!-in Britain), writes cookbooks and gets involved in seemingly goofy side projects like the DVD. You'd think doing so would cause a major disconnect with Ramsay's Michelin-starred restaurant empire, but the opposite appears to be true.
His vehicle to reach the 100-million-pound mark in sales? Ramsay says its Maze, a tapas-style restaurant he hopes to expand into an international chain. "I think there's real potential with Maze's deformalized eating concept to open a network of restaurants-a chain of baby Mazes, right across the world," he told Square Meal 2006. "And we'd need heavyweight financial backing to project us as a global brand in that way."
Ramsay's going global anyway, whether he goes public or not. He plans to open restaurants in New York City and a Maze-like operation in Los Angeles this year. In the near future, he's got his eye on Chicago, Singapore and Shanghai.
Is this guy spreading himself too thin? Could be, but as he demonstrated so ably in his British TV show Ramsay's Kitchen Nightmares, he can turn even other people's poorly run restaurants into money-making operations, serving very good food, in short order. Ramsay's profane and rambunctious public persona masks his strong business skills and entrepreneurial drive, and his seven Michelin stars are solid testimony to his cooking prowess. No wonder investors are hoping that he goes public via an IPO.
