Ms. Meyer: So far this year is only three months. I'll look a little more broadly than that. The group has been pretty strong, coming off a tough year last year when same-store sales were weak, particularly starting May, when consumers reacted to rising gas prices and pulled back on demand. That was coupled with the strongest commodity-inflation picture we've seen in a number of years. The group has rebounded for two reasons. One is the expectation that demand will strengthen this year, at the very least because of easy comparisons. The second is the expectation that the commodity picture will be better this year and that we have a little more visibility on data. Many of our companies have to sign contracts, and at the end of last year we saw, for example, beef contracts for 2005 would be coming in at half the inflation rate of the previous year. So while we're still seeing some inflation on the food- cost side and some on the labor side, it doesn't seem to be as bad as 2004, and the stocks have rallied in anticipation of better demand and good news on the commodity front.
TWST: Bryan, what's your take on what we've seen so far this year and
late last year?
Mr. Elliott: I agree with what Janice had to say. I would also add one
other observation. That is, coming off the late-summer lows for the
casual dining group last year and continuing to now, I think we've seen
an interesting change in character as to how at least the larger casual
dining stocks, which are really solidly in the mid-cap growth-stock
investor space now, have been reacting to news and how they've been
trading on a day-to-day basis. I've been commenting for a number of
years on the maturation of the casual dining business ' the generally
rising margin, rising return on capital, rising free cash flow, and
increasingly healthy business environment and financial picture for the
bulk of the companies. And as a number of stocks have moved into that
mid-cap investor space, I think we've seen an increasing amount of buy-
and-hold mid-cap growth capital flow into them. We reached, I think six
to nine months ago, a tipping point, if you will, to the point where
that type of capital has sort of taken control of the trading of these
stocks from the traditional constituencies, which were more rapid
turnover, growth-stock and trading kinds of capital. I think that's
something that has helped to increase the valuations and create the
strong performance that we've seen since late last summer, early fall,
and it's something I think will last some time and create a steady rise
in the relative valuations of the larger names ' in the casual dining
space, at least.
Tickers included in this excerpt: APPB, BWLD, CAKE, CBRL, CEC, CPKI, DRI, EAT, IHP, MCD, MSSR, OSI, PFCB, PNRA, RARE, RI, RRGB, RYAN, SBUX, SNS, SONC, TXRH, WEN, YUM
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