Lone Star Steakhouse: A Slice Of Texas For Carnivores Only

Jamie B. Coulter thinks everyone has the right to change his or her mind. After all, he did. When a friend proposed teaming up to start a steakhouse in 1985, he turned him down flat. Coulter, who owned several Pizza Hut franchises, was trying to get into the rent-to-own appliance business at the time. He just didn't have time for steak. But five years later, after pulling out of the appliance business, Coulter reconsidered. And he's glad he did.

Coulter, now 52, is chief executive of Lone Star Steakhouse & Saloon Inc. And the Wichita-based chain is sizzling. No.2 on BUSINESS WEEK's 1993 list of Hot Growth Companies, it has carved out a fast-growing niche in a category long on the decline as Americans have switched to eating more chicken and fish. Analyst David Geraty of Minneapolis-based Wessels, Arnold & Henderson estimates that the company's earnings could quadruple in 1993, to $15.6 million, as revenues more than triple, to $109 million.

URBAN AVOIDANCE. So far, the stock has also been stellar. Since going public a year ago, Lone Star has seen its share price quadruple to around 25. Still, some speculators think Lone Star may not keep shining so brightly. Short-sellers have acquired 11% of the company's shares, which are trading at a lofty price-earnings ratio of 104, the highest of any company on this year's Hot Growth rankings.

Why have the steakhouse and its stock soared in our cholesterol-conscious world? For starters, Lone Star has largely avoided big cities and their trendy salad-eating urbanites. Instead, the chain's 29 restaurants are located in smaller settings where a thick, juicy steak still commands respect, such as Fort Wayne, Ind., and Richmond, Va. And Lone Star serves up a slice of Texas with its meals, with country music and a Texas state flag flapping out front.

Coulter has Texas-size plans for the chain. He wants to open at least 36 more restaurants this year and a similar number in 1994. That's pretty ambitious, but most analysts believe Coulter has the experience--and the financing--to pull it off. Lone Star is debt-free, and the company raised $41.3 million in a private placement of stock last fall.

The biggest obstacle to Lone Star is the competition. "The field is starting to fill up with imitators," says consultant Ronald Paul of Technomic Inc. But Coulter says he can handle them. Unlike rivals such as Outback Steakhouse Inc. that fry their steaks, he points out that Lone Star grills its steak over mesquite. Another distinction, in Coulter's view: Lone Star's seasoned management. Many of the chain's executives used to work at Coulter's Pizza Hut operations. Coulter says he has a trained team that can keep a lid on costs at a fast-growing restaurant. Given his expansion plans, those skills could come in mighty handy.

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