People Substituting Burgers for Steaks

As people find it more expensive to eat out, it appears they are going downstream very quickly. I've been down on restaurants a LONG time [Sept 19: Tough Times Ahead: Restaurants?]... (but I can't short them because I have no vehicle to do so in this Marketocracy.com account); but I still maintain on any Kool Aid spike these are the most perfect short (rising input costs on one side, strapped consumer on the other) During this week's earning preview I wrote

Red Robin Gourmet Burgers (RRGB) - would it be greedy to say "it's a restauraunt; it must be shorted"? Ruth's Chris Steak House (RUTH) too?

Well it looks like Red Robin did fine, but steak and seafood - is not doing so well. This is where a lot of those upper middle income people who buy Coach (COH) bags and Harleys (HOG) with their towering mortgage debt (previously known as house ATM), like to eat. But now we are trading down as a nation; in this case going from steak to burgers. And again why I continue to say anyone clinging to full year 2008 estimates as a reason to drive stocks up, for any stock tied to the domestic consumer is drinking full swigs of Kool Aid.

• Casual dining chain Red Robin Gourmet Burgers Inc. (RRGB) said Thursday its fourth-quarter profit rose 14 percent, boosted by an increase in average guest checks. Company-owned same-store sales rose 2.7 percent on a 12-week comparable basis. Red Robin reported a 4.2 percent increase in the average guest check, which was partially offset by a 1.5 percent drop in guest counts.
• Restaurant chain Ruth's Chris Steak House Inc (RUTH) said its quarterly profit more than halved and forecast 2008 results way below analysts' estimates, sending shares down by about 5 percent. The company reported fourth-quarter net income of $4.1 million, or 18 cents a share, compared with $10.7 million, or 46 cents a share, a year earlier. ompany-owned comparable restaurant sales fell 5.6 percent.
• "Our fourth-quarter results reflected continuing challenges with guest traffic, driven by an uncertain economy and a more cautious consumer," Chief Executive Officer Craig Miller said in a statement.
• McCormick & Schmick's Seafood Restaurants Inc (MSSR) swung to a surprise quarterly loss, hurt mainly by higher costs, and forecast 2008 earnings below market estimates, sending shares down nearly 18 percent in trading after the bell.
• The company said it expects continued sales declines due to current macro economic issues and forecast 2008 earnings of 64 cents to 74 cents per share, on revenue of $410 million to $420 million.
• The Portland, Oregon-based company said it does not see any meaningful turnaround in the near term, at least not in the first half of 2008, and forecast comparable restaurant sales to decline 2 percent to 4 percent for the year.

Again, 2008 earnings forecasts for any US centric retailer or restaurant is simply abject guesswork. And too high. They look cheap but they are not. Again, October 2007-December 2007 was a time when the economy was just beginning to slow down if you believe the aggregate reports. What happens in a meaningful slowdown? If I were in a real mutual fund, I'd be shorting the heck out of these (still) on each spike - like we had in January when the "consumer will be back by 2nd half 2008" Kool Aid was running highest. Some of these will not be in business in 3 years. Overbuilt, and too expensive to run profitability with the coming inflation and inability to pass prices to a struggling consumer.

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