• U.S. retailer American Eagle Outfitters (AEO) announced yesterday (Tuesday) that second-quarter earnings fell to $59.8 million, or 29 cents a share, from $81.3 million, or 37 cents a share for the same period the year prior, MarketWatch reported. Despite the drop, American Eagle stock gained 55 cents, an increase of 4%, to close at $14.29 the day of the announcement.

• Darden Restaurants Inc. (DRI) warned investors that quarterly profit would not meet expectations due to a drop in traffic at its chain restaurants such as Red Lobster and the Olive Garden, Reuters reported. Darden stock dropped over 12% with a decline of $4.01 to close at $28.25 yesterday (Tuesday).

• Crude oil for October delivery gained over $1 to cross the $116 per barrel threshold yesterday (Tuesday) on the threat of Hurricane Gustav disrupting supply chains and continued unrest in Georgia. “Prices surged because Gustav appears to be strengthening as it moves toward the Gulf,” Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. (MF) in New York told Bloomberg News. “The news from Georgia is also helping send prices higher. Tension is ratcheting up instead of cooling down.”

• The U.S. Federal Deposit Insurance Corp. had 117 banks on its “problem list” of banks in its quarterly report released yesterday (Tuesday). It’s the highest level since mid-2003 for the list and up from 90 banks in the first quarter, Bloomberg News reported. “Quite frankly, the results were pretty dismal, and we don’t see a return to the high earnings levels of previous years any time soon,” FDIC Chairman Sheila Bair said at a news conference.

• Hewlett-Packard Company (HPQ) yesterday (Tuesday) completed its $13 billion acquisition of Electronic Data Systems Corp. (EDS), a move expected to increase competition with rival IBM Corp. (IBM). The EDS acquisition is H-P’s largest since the company bought Compaq Computer for $19 billion in 2002, according to MarketWatch.

• Citigroup Inc. (C) will pay nearly $18 million in refunds and settlement charges for taking $14 million from customers’ credit card accounts from 1992 to 2003, The Associated Press reported yesterday (Tuesday). Citi will issue refunds to the 53,000 customers and will pay $3.5 million in damages and civil penalties to the state of California.

• GT Solar International Inc. (SOLR) said yesterday (Tuesday) that it swung to a $5.1 million profit for the quarter ended June 28. The company lost $5 million over the same period last year. Revenue nearly quadrupled from $15.4 million in 2007, to $57.1 million.

• Mining giant Rio Tinto PLC (RTP) announced a 55% jump in first-half profit, boosted by its takeover of Alcan Inc. and strong Chinese demand. “While the equity markets are currently focused on downside risks, we believe there are potential offsets on the upside based on continued strength in commodity demand, low inventory levels and a supply side which continues to face multiple constraints,” Chairman Paul Skinner said in a statement. “The group continues to perform strongly, and the outlook remains positive.”

Source: Global Investing Roundups Wednesday, August 27th, 2008

Yesterday (Tuesday), two chains under the Metromedia Restaurant Group umbrella closed their doors after filing for Chapter 7 bankruptcy protection. More than 300 Irish pub-themed Bennigan’s Grill & Tavern locations, as well as nationwide Steak & Ale outlets were told not to open on Tuesday, as the chains no longer had enough money to pay staff through the rest of the week.

The casual dining restaurant closings are “something we’re going to see more of over the next 6 to 12 months,” Amy Greene, a director at Avondale Partners who tracks the restaurant industry, told The New York Times.

And while the casual dining restaurants are struggling, there’s slim hope of receiving financing to help make it through the current economic downturn.

“Banks have become less willing to lend to restaurants and franchisees,” Greene said. “The business fundamentals just do not support it right now.”

It might seem odd that casual dining restaurants are having so much trouble when data from the National Restaurant Association is pointing to a 4.4% increase in restaurant sales this year. But many analysts feel those figures are misleading, as the number of new chains and locations are outstripping consumer demand.

“The absolute sales are up for the restaurant industry; that’s because new units are opening,” Lynne Collier, restaurant analyst for Keybanc Capital Markets, told CNNMoney. “But when you look at same-store-sales, that has been negative for the industry for quite a while now.”

Same-store sales were flat in 2006, down 1.1% in 2007, and down 1.1% year-to-date, Collier said, although there was a slight bump in May, mainly attributed to the government issued stimulus checks.

The pattern of declining same-store sales for casual dining restaurants is why the closing of Bennigan’s shouldn’t have come as much of a surprise for anyone familiar with the industry, according to Ron Paul, president of Technomic, a restaurant industry-consulting group.

“These restaurants share many subtle and complex challenges that extend beyond this difficult economic climate,” Paul told MarketWatch. “To some extent, they’ve become victims of their own success – a mature category with too many units and not enough differentiation, at least in the eyes of consumers.”

With so many similar choices in the casual dining restaurant market, consumers have little incentive to choose Bennigan’s over similar competitors such as Carlson Restaurants Worldwide, Inc.’s T.G.I. Friday’s chain or Ruby Tuesday, Inc. (RT), whose shares are down almost 30% so far this year.

“All these bar and grill concepts are very, very similar,” Bob Goldin, executive vice president of Technomic, told The New York Times. “They have the same kind of menu, décor, appeal,” making it more difficult to establish brand loyalty among customers.

But some casual dining chains have found the recipe for success. Darden Restaurants Inc. (DRI), owner of Red Lobster and The Olive Garden, has been able to position itself as good value for the price.

“[Olive Garden] appears to be gaining share through a strong value message,” Bryan Elliott, restaurant analyst for Raymond James, told CNNMoney. He praised the company for its effective advertising and marketing. “All-you-can-eat bread sticks and salad creates a perception of lots of value for the money.”

And that’s why Darden shares are up over 18% year-to-date, while some of its casual dining rivals are being forced to close their doors.

Source: Casual Dining Restaurants Suffer from Slackening Consumer Spending