Morton’s Makeover Seen in $39 Steaks at Landry’s Chain: Retail
In an industry where appetite is a business imperative, restaurant owner Tilman J. Fertitta has a larger hunger than most.
In the past three months alone, Fertitta’s closely held Landry’s Inc. has gobbled up two iconic names in American dining: Morton’s Restaurant Group and McCormick & Schmick’s Seafood Restaurants.
Fertitta is betting that an improving economy will power fine-dining restaurants such as Morton’s, which is known for its 22-ounce, $54 Chicago-style ribeye steak. To boost growth at the 67-store chain, Landry’s 54-year-old chairman and chief executive officer is adding more affordable items to the menu, such as $29 shrimp scampi capellini and a $39 filet mignon. He’s also tweaking the ambiance -- hipper music, new uniforms -- in an attempt to attract a younger crowd.
“It’s not going to be your daddy’s steakhouse,” said Fertitta, whose drawl betrays his Galveston, Texas, upbringing.
Fertitta’s empire encompasses more than 400 properties, including casinos, hotels and aquariums. While his acquisition spree is slowing, Fertitta may divest or take certain brands public, he said in an interview at his eighth-floor Houston office, which boasts a balcony with a downtown view and statues of eagles and dolphins. He sold Joe’s Crab Shack to J.H. Whitney Capital Partners LLC in 2006 for $192 million.
Revenue at Landry’s restaurants, hotels and entertainment segment rose 59 percent to $1.42 billion last year, gaining for the second year after dropping 5.3 percent in 2009. In the U.S., sales at full-service dining chains advanced 2.5 percent to $179 billion in 2011, according to Chicago-based research firm Technomic Inc. This year Landry’s as a whole will generate sales of $2.5 billion, a 41-fold increase since 1993, when the company originally went public.
Adjusted earnings before interest, tax, depreciation and amortization rose 37 percent last year to $290 million. Average sales per restaurant are $5.4 million compared with $4.7 million at Darden Restaurants Inc.’s (DRI) Olive Garden and $10.2 million at Cheesecake Factory Inc. (CAKE), according to company filings.
Fertitta, who dropped out of business classes at the University of Houston to become an entrepreneur, bought his first two restaurants in 1986, the same year he opened his first hotel (2706) in Galveston. In 2005, he moved into gaming with the $295 million purchase of Golden Nugget Hotels and Casinos in Las Vegas and Laughlin, Nevada. Yesterday he added to his holdings, paying $45 million for the Isle Casino Hotel in Biloxi, Mississippi.
Over the years, Fertitta has earned a reputation for P.T. Barnum-style showmanship and a knack for understanding consumers. His Houston aquarium features the “Mysterious White Tigers of the Maharaja’s Temple” and a 300-pound python. A Rainforest Cafe in Galveston has an adventure ride; diners take a boat through a winding river with lush vegetation and animatronic jungle animals, including a gorilla and an elephant.
“He has an amazing sense of what the average person wants,” said Robert Eury, president of Central Houston Inc., who has worked with Fertitta on several projects, including the city’s Downtown Aquarium. Fertitta also has a knack for figuring out what price consumers are willing to pay, Eury said.
Fertitta has expanded Landry’s (LNY) mostly by modernizing struggling brands. He’s so immersed in the details he says he can tell the difference between a 60- and 70-watt light bulb. It’s the little things that bug him -- wobbly tables, crumbs on the bar, cigarette butts near the front entrance.
“When you walk in 95 percent of everything is right, five percent is wrong,” he said.
Fertitta’s empire-building hasn’t been without hiccups. Landry’s, especially its casino business, suffered during the economic downturn, as consumers pulled back on discretionary spending and vacations. Restaurant and hotel revenue have rebounded since the recession, while the gaming division hasn’t recovered quite as quickly, Fertitta said.
“It’s not back to 2007 numbers,” he said.
Fertitta has drawn criticism for building showy properties in Houston and Galveston. Some said he over-commercialized the area and brought in too many tourists and cruise ships, said Roger Quiroga, a former Galveston mayor who suggested changing the name of 57th Street to Tilman Fertitta Boulevard in 2004. The proposal died for lack of support, he said.
In October 2010, Fertitta spent $1.4 billion to take Landry’s private to avoid investors’ and analysts’ demands for quarterly results. He eventually paid $24.50 a share, after offering $14.75 in cash, and facing resistance from investors including Bill Ackman, head of New York-based hedge fund Pershing Square Capital Management LP.
“When you’re public, you’re at the mercy of the markets,” Fertitta said. “You can be doing extremely well, but if the markets are in the tank or your industry is in the tank, you don’t get rewarded for it.”
While Landry’s had $1.18 billion in debt in 2010, according to filings with the U.S. Securities and Exchange Commission, Fertitta said he’s not worried about leverage because his company has hard, physical assets.
“He’s levered, but not over-levered,” said Dave Jacquin, the founder of North Point Advisors, a San Francisco consulting firm that worked on the Morton’s and McCormick & Schmick’s deals. Fertitta may consider taking one or two restaurant brands public, such as Saltgrass Steak House, which has growth potential and could be a national brand, Jacquin said.
Fertitta plans to leave Landry’s to his four children and has “no intention of ever selling the company,” he said.
In late January, Fertitta was immersed in the details as usual, walking a carpet sample in his black loafers.
“It looks weak to me,” he said of the red, black and white Asian-inspired floor covering for a bar at the Golden Nugget in Las Vegas. “I like more solids, it’s too fractured.”
Still, he solicited his designers’ opinions.
“Don’t agree if you disagree,” he said. “You need to get on it, though. I don’t want to be waiting on carpet.”
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