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HOUSTON CHRONICLE - May 1, 2003

Landry’s serves up specialties

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The restaurant business is more than fish, steak and baked potatoes. In the case of Landry’s Restaurants, it also includes Sumatran tigers and volcanoes erupting on the half-hour.

For Houston-based Landry’s, the bread and butter of its business are operations like Joe’s Crab Shack and Saltgrass Steak House, but its entertainment-oriented projects are taking on an increasingly important role.

Its specialty projects – including the Downtown Aquarium Kemah Boardwalk, Rainforest Cafe and San Luis Resort and Ocean Journey Aquarium in Denver – comprise 10 to 15 percent of its total revenues, but “as the company matures, you can expect to see our specialty projects continue to grow,” said Tilman Fertitta, Landry’s chairman, president and CEO. “It gives us a competitive advantage.”

Fertitta said he believes that with places like the shark-infested Aquarium and the lava-spewing Rainforest Café in Galveston, “somebody can ’t just come in and compete against us.”

A lot of people can open a $1 million or $2 million restaurant, but not many can open a $30 million-plus operation like the Downtown Aquarium, said Paul Westra, a stock analyst with S.G. Cowen Securities Corp. in New York.

Multimillion-dollar specialty projects have the advantage of existing in a “de facto exclusive market,” Westra said. “There is only room for one of them in each town. ”

A facility like the Aquarium is a tough thing to pull off – it’s like opening a hotel-casino in Las Vegas, Westra said.

“There are a lot of movable parts,” he said, “but Landry ’s is good at this stuff.”

Once you’ve got the capability, Westra adds, “it is as easy to open another Aquarium as it is to open 15 or so Joe’s Crab Shacks.”

Landry’s specialty projects are expected to generate about $200 million in revenues this year, according to Fertitta.

It takes a lot more capital to develop a specialty project, Fertitta noted.

“We’ve got nearly $90 million invested on Texas Avenue alone,” he said in reference to the Downtown Aquarium, the lavish new Vic & Anthony’s Steakhouse and the yet-to-open Inn at the Ballpark.

On any weekend in the Houston-Galveston area, Fertitta said, his company is claiming a significant percentage of the entertainment dollar, with as many as 7,000 customers at a time.

This year, the company acquired Denver’s Ocean Journey Aquarium, where exotic fish, tigers and sea otters reside, and opened the Downtown Aquarium, the Rainforest Cafe in Galveston and 11 Joe ’s Crab Shacks.

For the first quarter of this year, the company reported earnings of 29 cents per share, up 2 cents from last year’s first quarter. Net income was $8.1 million, compared with a $6.2 million for the same period last year, while same-store sales for its seafood restaurants were down 2.2 percent. Bad weather was a factor in the flat same-store sales, Fertitta said.

The company’s stock closed at $18.70 Wednesday, up 90 cents, a 5 percent increase.

It was “a very good, better-than-expected” first quarter, analyst Westra said.

After a slow January and February, mostly because of bad weather, Landry’s rebounded in March, Westra said, and, looking forward, April same-store sales are slightly positive.

Overall, dining-out traffic is still down in the industry but is showing signs of recovery, said Westra, who noted that casual dining has been outperforming fast-food dining.

Given the challenging environment, Landry’s displayed “very good execution ” during the first quarter, Westra said.

Not all Landry’s special projects fared well. The three Rainforest Cafes at Disney sites and the one in Las Vegas had soft returns because tourism is down, Fertitta said.

He said the Houston and Galveston restaurants did well, and he is pleased with the performance of the 2 1⁄2-month-old Downtown Aquarium.

The facility’s public aquarium has drawn 300,000 people since opening, and the Shark voyage train has drawn 200,000 riders.

In each case, the company expected about half as many people, Fertitta said.

He said he expects the Downtown Aquarium to amass more than $20 million in revenues this year.

Landry’s operates 280 restaurants under the names Joe’s Crab Shack, Saltgrass Steak House, Landry’s Seafood House, The Crab House, Rainforest Cafe, Charley’s Crab and Chart House, and has 25 more outlets, including retail stores, at its Kemah site.

LANDRY’S BUYING SPREE

February 2002:
16-unit Muer Seafood Restaurants, based in Detroit.

August 2002:
35-unit Chart House chain with waterfront locations on east and west coasts.

October 2002:
Saltgrass Steak House, a Texas chain, with 27 restaurants.

March 2003:
Ocean Journey Aquarium complex in Denver.

Recent openings:
Rainforest Cafe in Galveston.
Downtown Aquarium entertainment and dining complex in Houston.

SMALLER STOCK PORTIONS
Landry’s, like other restaurant chains, has seen a drop in its stock price in the last year as the economy has languished.

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