Landry's Chains Seek Suitors

"I think there could be a lot of buyers," Michael Gallo, an analyst with New York City-based CL King & Associates, tells GSR. "It's wide open."

Landry's executives have said they are exploring options for the two chains to concentrate more on their high-end brands, like Landry's Seafood House, Chart House, Charley's Crab and Rainforest Café, as well as their Golden Nugget casino business. Joe's Crab Shack, acquired by Landry's in 1994, has about 150 units, while Saltgrass has about 35 restaurants, mostly in Texas. A sale of both chains would mean the disposition of more than half of Landry's 300 units in its restaurant portfolio.

Saltgrass could have the most buyer interest because of its strong financial performance, of 11 quarters of same-store sales gains, and growth potential, Gallo says. Parties interested in either chain could include private-equity firms or large restaurant companies that want to add a steak or seafood chain to their portfolio, he says.

An SG Cowen report calls Landry's potential sales a "wise strategic call," since concentrating on its other restaurants and the casino business could improve the company's bottom line. "Wecontinue to believe that [Landry's] has a one-of-a-kind defensible competitive advantage in the national development of large-scale restaurant/entertainment/gaming venues," it says.

During its most recently completed quarter, which ended on March 31, the company's restaurants same-store sales rose 2.1% year-over-year. At the beginning of the year, management announced the first international Joe's Crab Shack is to open in Cairo, Egypt.