OUTBACK STEAKHOUSE, INC.
A Financial Analysis & Strategic Plan by
David Harold Moore
July, 1995

• TABLE OF CONTENTS •
Title Page #
EXECUTIVE SUMMARY.................................................................................................. iii
THE OUTBACK’S PRINCIPLES & BELIEFS................................................................... iv
PART I: A FINANCIAL ANALYSIS
INTRODUCTION............................................................................................................ 2
THE OUTBACK STEAKHOUSE, 4
INC.............................................................................
THE DINNER HOUSE 6
INDUSTRY.................................................................................
THE DIRECT COMPETITION......................................................................................... 7
Lonestar, Longhorn & Bugaboo
FINANCIAL ANALYSIS................................................................................................ 10
Liquidity.................................................................................................................. 11
Profitability............................................................................................................ 12
Solvency................................................................................................................. 15
OPERATIONAL ANALYSIS........................................................................................... 18
FINANCIAL ANALYSIS FOR SPECIFIC USERS............................................................ 19
FINANCIAL ANALYSIS CONCLUSION....................................................................... 20
PART II: STRATEGIC PLANNING
PROBLEM STATEMENT & STRATEGIES........................................................................ 22
STAKEHOLDER ANALYSIS........................................................................................... 23
S.W.O.T. ANALYSIS.................................................................................................... 25
INDUSTRY ANALYSIS................................................................................................... 28
STRATEGY GENERATION & 30
EVALUATION.................................................................
Strategy One........................................................................................................... 31
Strategy Two.......................................................................................................... 34
Strategy Three........................................................................................................ 35
Strategy Four.......................................................................................................... 40
Strategy Five.......................................................................................................... 41
RECOMMENDATIONS................................................................................................... 44
THE OUTBACK STEAKHOUSE INC. UPDATE............................................................. 45
APPENDICES
Horizontal Analysis of the Consolidated Statement of Income................ A
Vertical Analysis of the Consolidated Statement of Income...................... B
Graphs: Liquidity Ratios..................................................................................... C
Graphs: Profitability Ratios................................................................................ D
Graphs: Solvency Ratios.................................................................................... F
Strategy Action Plans........................................................................................... H
REFERENCES.................................................................................................................. I
ii

•EXECUTIVE SUMMARY•
This study consists of two parts with the Outback’s Principles & Beliefs being the
introduction to the two parts. The first part is a 1994 financial statement analysis which
analyzes the Outback and their operation, the dinner house industry, the direct
competition, and the Outback’s financial strength with direct competition and industry
average comparatives. The second part takes that information and identifies a problem
while considering the strengths, weaknesses, opportunities, and threats as well as
analyzing the stakeholders and the industry in general. The second part ends up with
strategy generations, evaluations and a final recommendation on the strategies.
As the first line of the Outback’s mission statement implies, “The success of an
Outback is measured by its sales and profits”. If that is the case, then the Outback is
extremely successful. With a total of 230 units creating $451.9 million revenue and
earning $72.8 million in 1994, you see where the Outback is coming from. Since the
Outback is a visionary in the dinner/steakhouse market, they appeal to the casual
dining consumer with a certain amount of price sensitivity. This visionary leadership is
in the process of being copied and maybe improved upon by three major competitors -
- Lonestar, Longhorn & Bugaboo. However, these competitors have not as yet proven
their mettle. All in all, the Outback is in a strong financial position.
The problem, however, is that due to increased competition the Outback must
strengthen their leadership position in the market in order to keep a long-term
competitive advantage. In essence, the Outback should intensify national expansion
efforts through business format franchising with a buyback clause while investigating
the international market further; they should add on a take-out/drive through section;
they should create ‘secret’ healthy menu items while practicing a regional menu
engineering strategy; they should intensify their related market expansion efforts
through the Carrabba’s Italian Grill expansion; and they should alter their current site
selection strategy. As shown in the strategy evaluations, all the strategies have
excellent potential profit, they all reduce portfolio risk, and they all are relatively
inexpensive.
These strategies will strengthen their long-term competitive advantage -- the goal.
iii

•THE OUTBACK’S PRINCIPLES & BELIEFS•
“The success of an Outback is measured by its sales and profits. This success is the
result of our principles and beliefs about people and the most effective way to support our
restaurants. These principles and beliefs are inviolate, critical to our continued success, and
shared by all who call themselves ‘Outbackers.’ We believe that if we take care of our people --
Outbackers, customers, suppliers, neighbors, and partners -- then the institution of Outback
will take care of itself.”
OUR PRINCIPLES AND BELIEFS
Our five most important principles are hospitality, sharing, quality, fun, and
courage.
HOSPITALITY is giving for the sake of giving, rather than for the sake of gaining.
It is giving to people beyond what is expected of us; it is our willingness to help them in
tangible ways; it is having a genuine concern and being action-oriented toward their
comfort and well-being.
SHARING is inviting people to participate in the fruits of our success. It includes
sharing dollars, responsibility, authority, and accountability; it is “we” made it happen
rather than “I” made it happen.
QUALITY is having a purpose and always working to improve. It is attention to
detail. It is consistently meeting and then exceeding our standards.
FUN is having a sense of humor, being able to laugh at ourselves, and celebrate
together.
COURAGE is living our principles and meeting our standards with absolute
discipline while having a “no rules” approach to consumers. It is being focused on
results, sticking to the core of our business, and accommodating the individuality of our
people rather than demanding that they accommodate us.
iv

PART I
A Financial Analysis

•INTRODUCTION•
“With a goal of 350 restaurants and $1 billion in revenues by the end of 1996, the
Outback faces increasing competition in the expanding themed steak-house arena.”
(Nation’s, 1995)
The Outback is an ‘Australian’ themed steak house that is open for dinner only.
It has a limited menu featuring beef, fresh fish, shrimp, chicken, ribs, pork, and pastas.
This limited menu in combination with the Outback’s limited operating hours is a
reflection of the company’s unconventional corporate culture. With the theme “No
Rules, Just Right” emanating from the top down (or is it the bottom up?), there is no
doubting that these unconventional methods are leading to profitable results.
Case in point; the Outback began in 1987 with one unit located in Tampa, Florida.
The Outback now consists of 230 units from coast to coast with a projected expansion
rate of 70 units per year for the next half decade. The Outback has also launched a new
international division which is expected to propel the company into Europe, South
America, the Middle East and the Pacific Rim. Combine this with revenues of $451.9
million and earnings of $72.8 million in 1994 and you get a highly successful
organization.
1992
Total Number of Restaurants
1993
1994
250
200
150
100
50
0
1992 1993 1994
page 2

Furthermore, the Outback is diversifying their organization by entering the
casual Italian dinner market. The Outback currently has a 50% interest in twelve of
these restaurants which are named Carrabba’s Italian Grills. They are currently in the
development stage but show promise.
Before continuing on to the strategic financial plan, the corporate stratification
should be explained.
1992
System-Wide Restaurant Sales
1993
1994
$600,000,000
$500,000,000
$400,000,000
$300,000,000
$200,000,000
$100,000,000
$0
1992 1993 1994
page 3

•THE OUTBACK STEAKHOUSE, INC.•
Of the 230 units only 164 are company owned. Company owned signifies an
interest of 81% to 90% ownership. The other 10% to 19% is owned by the managing
partner and/or the joint venture partner. This company strategy is one of the pillars
supporting the Outback’s financial success.
You see, a managing partner is considered the store’s proprietor. He or she puts
up a $25,000 payment as a vested interest in the unit. In return, the managing partner
receives 10% of the profits generated from his or her unit. This kills two birds with one
stone. The managing partner now considers him or herself the owner of the store and
will act accordingly, and the need for a massive corporate bureaucracy has been
destroyed due to the managing partners vested interest. This one concept, in part, is
what has taken Outback to where it is today.
The compensation for these managing partners ranges anywhere from $80,000
to $180,000 per year depending upon the store’s profits. The obvious result is
practically no management turnover, quality management, and quality food/service.
The impact of this strategy has yet to be fully discovered.
Although the managing partner was discussed above, the joint venture partner
is similar except that he or she usually operates/oversees multiple units. Again, killing
the need for a corporate bureaucracy and leaving a possible regional creativity which is
needed to succeed on a vast scale such as the Outback has done.
Now, with 164 units owned by the company that still leaves 66 units of which 54
are franchised and the remaining 12 are considered Development Joint Venture units.
The franchised restaurants create no direct income from operations other than
franchise fees and royalties, which are included in the Company’s revenues.
page 4

The 12 Development Joint Venture Units are split 50/50 in costs as well as profits.
Fifty percent is company owned and 40% is owned by the Joint Venture Partner with
the remaining 10% owned by the managing partner.
Finally, the Outback is responsible for 100% of the costs of the new Carrabba’s
Italian Grills while the profits are split evenly between the Joint Venture Partner and the
company.
[(Annual, 1994), (Nation’s, 1995), (Investext, 1994)]
page 5

•THE DINNER HOUSE INDUSTRY•
Succeeding in the competitive restaurant industry requires the ability to adapt to,
or better yet prepare for, a changing environment. The speed at which some of the
changes take place along with the daily complexities of the business can obscure the
significant role which long-term planning can play in success. Emerging socio-economic
patterns and the resulting alterations in the demographic profiles of individual
restaurant patrons, as well as the diversifying of their lifestyles, attitudes and
preferences will impact the profitability of individual restaurant businesses (Dun, 1985).
It is this basic premise that has foreordained the success of the casual dinner house
market of which Outback is part.
The dinner house market is a market targeted at those who don’t wish to spend
the extra money & time for the formal environment which succeeded during the big
80’s. As the times have changed, so have the demographics of the consumer. The new
consumer is looking for a casual environment with quality food at a reasonable price as
well as quality service in a timely manner. It is the combination of these four
wants/needs created by the consumer that have resulted in the need and success of the
dinner house market.
It is this need that the Outback and their direct/indirect competitors have
capitalized on. In addition, for those who think that America is a health conscious
society as a whole, when eating out, they are wrong. The booming success of the
Outback chain and other ‘non-health’ food chains are the evidence. That is not to say
that offering healthy menu items is out. On the contrary, one must diversify the menu
to capitalize on the many wants of the consumer.
It is only through constant vigilance that allows the strong to survive!
page 6

•THE DIRECT COMPETITION•
“Outback’s guiding founders face hostile and explosive competition in the rapidly
expanding themed steak-house arena, led by such chains as Wichita Kansas based Lone Star
Steakhouse & Saloon, Atlanta based Longhorn Steaks, and Bugaboo Creek
Steakhouse.” (Nations, 1995)
Due to the uniqueness of the Outback and their thriving market, the Outback has
began in a niche where competition is coming from behind -- in essence, Outback is the
industry leader. This gives the Outback a sizable edge over the competition but also
allows for the competition to capitalize on the Outback’s weaknesses. Only time will tell
how well the competition does this.
The state flag of Texas that flaps outside every Lone Star Steakhouse & Saloon is
symbolic of their ambition. They have long-term plans to open 600 restaurants
throughout the world. And as amusing as it may seem, they already have two
restaurants in Australia (Outback has none). (F&B Business, July/August, 1994)
The Lone Star Steakhouse & Saloon is similar in design and concept
implementation. However, they are open for lunch and the management
compensation is not as lucrative. The image is Country/Western which is carried
throughout the restaurant with the music as well as employee uniforms. Besides that
image difference, much is similar except for overall financial performance, which will be
analyzed on the following pages. However, with 30 new units being opened during the
fourth quarter of 1994 and a total of 104 units at then end of 1994, their expansion plans
are rapid as well as on track. This company is a definite long-term threat. (Smith, 1994)
Longhorn Steaks is in the midst of an operational turnaround. The company has
significantly augmented its management team over the last year and developed a ‘new
page 7

prototype’ Longhorn restaurant, which has shown promising results in its initial
markets. With its revamped concept and a network of joint venture partners,
Longhorn is poised to resume expansion of its restaurant base at a 20+% rate over the
next two years. The company is embarking on a remodeling plan to convert existing
stores to the new format with the goal of duplicating the initial results of the first
several conversions. (Raymond James & Associates, Inc. April 7, 1995)
As of 1994 the Longhorn has a total of 49 units. Their menu selection is limited but
otherwise the concept is similar to Lone Star and therefore Outback. Their major
problem being the fine tuning of their stores as well as growth implementation.
(Robinson, 1994)
Bugaboo Creek Steakhouse, based in Providence Rhode Island, owns and
operates two complementary restaurant concepts. Bugaboo Creek’s Steakhouse’s
Canadian Rocky Mountain Lodge atmosphere appeals to the family and casual dining
segment. The Lodge offers seasoned steaks, classic prime rib, roasted chicken and
various electronically animated characters which come to life as dining entertainment.
Capital Grille is characterized by luxurious appointments, top-quality menu offerings
featuring steak and seafood and an extensive wine list. The restaurants are clustered in
hub and spoke configurations in and around New England and greater Washington
D.C..
Since its inception in 1990, the company has developed an operating base of six
restaurants, with expansion plans and funding in place to grow 35 units by the end of
fiscal year 1997. The Springfield Virginia Bugaboo Creek that opened the first week of
March 1994 is already experiencing waiting times of over two hours and is generating
weekly sales volumes approaching the company average of $70,000. On April 25 1994,
well ahead of schedule, Bugaboo Creek opened in Peabody MA at the North Shore
page 8

Mall. Volume for the first two weeks has been significantly ahead of company average.
(Hancock Institutional Equity Services, May 23, 1994.)
It seems the Bugaboo Steakhouse is poised for success. However, I cannot
comment on Bugaboo because I have not as yet had the pleasure of dining in it. I have
been to both Longhorn (before new concept implementation) and Lonestar more than
once and was not impressed with their food when compared to the Outback
Steakhouse. I do believe the LoneStar to be the major long-term threat because of their
site selection. However, Bugaboo sounds like a well diversified company targeting a bit
higher priced consumer market. So, I believe all three combined pose a great threat to
the success of the Outback’s long-term success.
Then again, who knows, the three big boys who run Outback might plan on selling out
to General Mills when the Outback begins to hit their maturity curve. Its either that or
begin a revitalization/long-term strategy now!
page 9

•FINANCIAL ANALYSIS•
The Outback’s financial status will be based on nine ratios from the three major
categories: the Current ratio and the Quick ratio for LIQUIDITY; the Asset Turnover
ratio, Profit Margin before income tax, Return on Total Assets and Return on
Common Equity for PROFITABILITY; and finally the Debt ratio, Times Interest Earned
ratio and Debt/Equity ratio for SOLVENCY. These ratios will be compared to their
direct competitors Longhorn, Lonestar, & Bugaboo as well as the Industry Average.
The Industry Average for each has been included at the bottom of each chart
and at the end of each graph designated by a magenta bar (see Appendices C-G). This
industry average if from the 1995 Almanac of Business and Industrial Financial Ratios by
Leo Troy. The industry average is from drinking and eating places with total assets
ranging from $100 million to $250 million. The Outback has total assets of $228 million
at the end of the fiscal year 1994 (Annual, 1994).
The use of this financial information is intended to serve in making financial and
business decisions critical to a company’s competitive position. Management decisions
affect the durability of the enterprise, the interests of owners, creditors, and consumers.
These demands on those responsible for the survival and success of the company have
become even more intense as markets become increasingly competitive, domestically
and in the world. With those challenges in mind, the following ratios are essential to
successful financial management. (Troy, 1995)
page 10

LIQUIDITY
CURRENT RATIO
Company 1991 1992 1993 1994
Outback 2.74 3.68 1.93 .96
Lonestar NA 10.72 13.25 3.82
Longhorn .46 3.0 5.39 3.56
Bugaboo NA .91 .68 6.78
Industry Average = 1.3 • A Measure of Liquidity
This ratio, rated highest by CPA’s as a measure of liquidity, gauges the ability of
a company to meet their short-term financial obligations should it be compelled to
liquidate their short-term assets (Troy, 1995). It is calculated by dividing current assets
by current liabilities (Gibson, 1995). Typically, the standard guideline has been a ratio of
2 to 1. However, for the restaurant industry 1.3 is the average. As shown in the graph,
Lonestar, Longhorn and especially Bugaboo (who just went public) are gearing up for
rapid expansion and the Outback is in the thick of it with their rapid expansion in
progress.
QUICK RATIO
Company 1991 1992 1993 1994
Outback 2.47 3.42 1.52 0.57
Lonestar NA 9.92 11.97 2.98
Longhorn .23 2.16 4.63 2.98
Bugaboo NA .37 .35 6.13
Industry Average = 0.8 • A Measure of Liquidity
Also known as the ‘Acid Test Ratio’, it is often used to estimate the company’s
general liquidity. The numerator is cash equivalents + marketable securities + net
page 11

receivable which is divided by current liabilities (Gibson, 1995). The conclusion is similar
to the current ratio when excluding inventories for the quick ratio - Lonestar, Longhorn
& Bugaboo are preparing for rapid expansion while the Outback is in the midst of it.
PROFITABILITY
ASSET TURNOVER RATIO
Company 1991 1992 1993 1994
Outback 2.48 1.46 1.95 1.98
Lonestar NA .44 .60 1.00
Longhorn NA 1.95 1.37 1.59
Bugaboo NA 1.63 1.53 .74
Industry Average = 1.5 • A Measure of Profitability
This profitability ratio indicates the effectiveness of the company in the use of
total assets in generating sales. Because it includes both current and fixed assets, the
ratio combines the ability of the company to convert their assets into other assets as
well as the ability of the company to sustain their sales (Troy, 1995). It is measured by
dividing sales by total assets (Gibson, 1995).
The Outback proves to be the strongest in effectiveness while the three
newcomers struggle for both growth and increased effectiveness in the use of their
total assets in generating sales. Lonestar being considerably lower, Longhorn being
slightly higher than the industry average of 1.5, and Bugaboo being well below the
industry average. Again, Outback outperforming all three.
PROFIT MARGIN BEFORE INCOME TAX
Company 1991 1992 1993 1994
page 12

Outback .11 .12 .13 .14
Lonestar .13 .25 .25 .23
Longhorn .04 .10 .07 .02
Bugaboo NA .04 .03 .10
Industry Average = .076 • A Measure of Profitability
This ratio, net income before income tax, divided by net sales, indicates the
contribution of sales to the profitability of the company. Put another way, it indicates
the amount of net income generated by a dollar of sales. Competition, capital structure,
and operating characteristics cause the margin to vary within and among industries.
(Troy, 1995)
Lonestar being well above the competition and showing considerable strength in
potential profitability while Bugaboo is rising to a competitive level and Longhorn
being way below the industry average of 0.7 and the Outback consistently growing
stronger.
RETURN ON TOTAL ASSETS (DUPONT)
Company 1991 1992 1993 1994
Outback .27 .18 .25 .28
Lonestar NA .11 .15 .23
Longhorn .20 .19 .10 .03
Bugaboo NA .07 .05 .07
Industry Average = .136 • A Measure of Profitability
This ratio combines the turnover and profit ratios (Sales/Total Assets X
Profit/Sales), and yields the return on investment (total assets) (Gibson, 1995). The
result is the end product of the Dupont system of financial analysis (Troy, 1995).
Using this method shows that the Outback, as the leader, uses their assets
considerably more efficiently than their competitors with Lonestar quickly rising.
page 13

RETURN ON COMMON EQUITY
Company 1991 1992 1993 1994
Outback .26 .16 .21 .23
Lonestar NA .07 .10 .16
Longhorn NA .16 .07 .03
Bugaboo NA .28 .24 .06
Industry Average = .137 • A Measure of Profitability
This ratio shows the profitability of the company’s operations to owners, after
income taxes. CPA’s ranked this profitability measure highest (Troy, 1995). It is
computed by taking the net income before non recurring items - preferred dividends
and dividing it by the average common equity (Gibson, 1995). The Outback shows the
highest return to the shareholder by more than twice their competition!
page 14

SOLVENCY
DEBT RATIO
Company 1991 1992 1993 1994
Outback .22 .19 .18 .25
Lonestar NA .07 .05 .09
Longhorn NA .14 .09 .12
Bugaboo NA .79 .80 .11
Industry Average = .454 • A Measure of Long-term Debt Paying Ability
This ratio, total liabilities to total assets, indicates the company’s ability to pay all
their debts. It measures the creditors and owners of the company’s ability to withstand
losses. It is an indicator of the long-run solvency of the firm. (Troy, 1995)
To put it in another way, it measures the extent to which borrowed funds have
been used to finance the company's assets. All the newcomers show a reduced
dependence on debt financing while the Outback has increased slightly to help secure
their position in the market by being the first casual steakhouse throughout the
country. In addition, all are markedly less leveraged than the industry.
page 15

COVERAGE RATIO/TIMES INTEREST EARNED RATIO (EBIT)
Company 1991 1992 1993 1994
Outback 29.18 65.12 111.34 144.62
Lonestar 13.80 NA NA NA
Longhorn 20.78 NA NA NA
Bugaboo NA 2.96 4.5 13.85
Industry Average = 5.4 • A Measure of Long-term Debt Paying Ability
This ratio measures the number of times all interest paid by the company is
covered by earning before interest charges and taxes. This widely used ratio uses
earnings before interest paid and taxes (EBIT) in the numerator because interest charges
are tax deductible (EBIT divided by Interest Expense). (Troy, 1995)
The ratio indicates the company’s ability to service their debt based on their
income. If the ratio is appropriate, as the Outback proves to be, then the company is
not in danger of meeting those charges and it enhances the company’s ability to roll
over debt at favorable rates. Again, the Outback shows phenomenal stability.
TOTAL LIABILITIES TO NET WORTH (DEBT/EQUITY RATIO)
Company 1991 1992 1993 1994
Outback .29 .24 .22 0.33
Lonestar NA .07 .06 NA
Longhorn 31.68 .16 .10 NA
Bugaboo NA 2.75 2.46 NA
Industry Average = 0.8 • A Measure of Long-term Debt Paying Ability
This ratio is one of the most important on capital structure. This ratio indicates
the extent to which the company’s funds are supplied by short and long -term creditors
compared to their owners. It is an indicator of the company’s long-term debt paying
ability (Total Liabilities divided by Shareholders Equity). (Troy, 1995)
page 16

Although the two competitors, Lonestar & Longhorn, are showing immense
promise, the Outback is remaining rather steady and definitely lower than the industry
average.
page 17

•OPERATIONAL ANALYSIS•
HORIZONTAL & VERTICAL ANALYSIS OF THE CONSOLIDATED STATEMENT OF INCOME
(see appendices A & B)
As shown on the Horizontal analysis of the consolidated statement of income,
the growth rate of the Outback since 1992 has been 238% as of 1994. In addition, from
the goals of the company, the Outback will continue to grow at a rapid rate till the year
2000. There is only one falling and that is the interest income which is most likely due
to the expensive growth activities.
The Outback is a phenomenal company proving their worth in the United States and
eventually the world.
The Vertical analysis shows complete and total consistency over the last three
years. Again, a stable company with rapid expansion is a rare thing. This just
reinforces the strength of this company.
page 18

•FINANCIAL ANALYSIS FOR SPECIFIC USERS•
CREDITORS
From the facts and figures shown throughout this financial analysis, there is no
doubt that the creditors are in line to lend the Outback money. Although the liquidity
of the company is slightly lower than industry averages (Current .96 compared to 1.3
for industry and Quick .58 compared to .8 for industry) the long-term solvency of the
company is phenomenal. As stated earlier, the short term debt paying ability is a result
of the rapid expansion currently in progress.
MANAGEMENT
Of all the stakeholders, it is management and investors that should be the most
pleased. Management is showing a high growth rate of 238% over the last three years
and a fantastic return on common equity of 23%. Since it is management’s job to
maximize shareholders wealth, I believe they have done an excellent job.
INVESTORS
The combination of all these factors show that this company is a highly
recommended investment. All indicators show increased profit for all as well as a
steady/rapid growth over the next five years. A strong recommendation would be to
buy stock at the lowest possible and hang on to it for a five year period and then
unload at a peak during the fifth year. By then the Outback should be reaching the top
of their maturity curve. The only risks being competition and the risky international
venture, of which both I consider to be low in risk due to the many management and
quality factors the Outback has instituted. However, onw must not rest on one’s
laurels.
page 19

•FINANCIAL ANALYSIS SUMMARY•
Well, what is left to say about this immensely successful company. It is on the
right track and is the industry leader in almost all aspects of their operation. The
competition is years behind (at present) and the visionary leadership of this company
will make this company a high-return investment for all the stakeholders involved.
The strategic management of this company is really what makes it the winner it
is. During the strategic study, much more will be discussed which will enlighten the
reader further to what this company is all about and what I believe needs to be worked
upon.
The Outback has set the new standards for the restaurant industry and only a new
visionary will knock this company off of Wall Street! And, who is to say when that will
come?
page 20

Part II
Strategic Planning

•PROBLEM STATEMENT & STRATEGIES•
PROBLEM STATEMENT
Due to increased competition, the Outback must strengthen their leadership
position in the market in order to keep a long-term competitive advantage.
STRATEGY ONE
The Outback should intensify their national expansion efforts through business
format franchising with buyback clauses while investigating the international market
further.
STRATEGY TWO
The Outback should differentiate their-self from the Dinner House market by
adding a takeout/drive through section to their already successful restaurant services.
(still must call ahead).
STRATEGY THREE
The Outback should include more ‘secret’ healthy menu selections while
practicing a regional menu engineering strategy.
STRATEGY FOUR
The Outback should intensify their related market expansion efforts.
STRATEGY FIVE
The Outback should change their site selection strategy from buying B-sites to
buying high-end B-sites & low-end A-sites while reducing their market saturation
strategy.
page 22

•STAKEHOLDER ANALYSIS•
The key stakeholders in the Outback Steakhouse are the Employees, the
Consumers, the Competitors, the Government, and the Stockholders. These
stakeholders represent the task environment which accounts for the greatest amount of
influence on the Outback Steakhouse.
The first and most influential stakeholder is the employee. Realizing that the
employee is the key to any service oriented company, the Outback strives to make
their employees happy. This is proven by the total loss of 10 managing partners over
that last six years (Nation’s, 1995). By making the employee happy, you begin a chain
reaction. This point can best be illustrated by any disagreeable experience you may
have had in a restaurant. That unpleasant experience was most likely a direct result of
an employee attitude. Making the employee happy is an essential cause of the
Outback's success. This does not mean they have completed the loop. As far as the
restaurant industry is concerned, there is much to be done with the front line employee
as well as the back of house employees.
The second most influential stakeholder is the consumer. If the consumer does
not like the elements that are your restaurant, then you will not succeed. The
atmosphere, food, service, and price are all part of making the consumer happy. And a
key point that must be illustrated here is that you cannot just satisfy the guest anymore,
you must consistently exceed their expectations to succeed. The Outback has done so to
date, but what is their next step?
The third most influential stakeholder is the competitor. The competitor insures
that you do not become functionally obsolete. They do this by being extremely
competitive which in turn makes you become extremely competitive. Outback's major
competitors at this point are Lonestar, Longhorn & Bugaboo which were discussed
earlier. Again, with the highly competitive food service industry, you can not fall
page 23

behind. You must keep up with current trends and always work on exceeding the
guest expectations.
The fourth stakeholder is the government. With the Alcohol Tobacco &
Firearms always insuring that the state and federal regulations are being followed,
along with the federal government instituting new taxes and tax reforms; such as the
1986 Tax Reform Act which lowered business related meal write offs to 80% from the
original of 100%, as well as the increasing legislation on drinking and driving, there is
no question that the government is a major stakeholder. Outback must be a major
player in the government arena maintain their financial performance.
The fifth stakeholder is the stockholder. Stockholders consist of the general
public as well as the employees of the Outback; both being an asset to the companies
future. With pressure from the public for greater earnings and the vested interest of
the employees, the profits become a major concern. The results being shown through
the 144% growth in earnings per common share from 1992 to 1994. Let us hope they
figure out ways to maintain their growth.
All of these stakeholders; employees, consumers, competitors, government, and
stockholders play a major role in the success of the Outback Steakhouse. Without their
constant pressures, the Outback would not be where it is today. However, the question
still remains, where will they be tomorrow?
page 24

•S.W.O.T. ANALYSIS•
STRENGTHS
• Concept Design - the Outback appeals to a wide market with a casual
Australian theme.
• Managing Partner Turnover Rate - non-existent (10 in last six years).
• Menu Design - diverse, moderately priced, and “prepared from
substantially fresh products each day”.
• Consumer Loyalty - greater than fifty percent of the consumers
visit three times a month.
• Relatively Quick Table Turnover - a 45 minute average
• Rapid Growth - 85 to 230 units in three years.
• Not Constantly Innovative - not always updating current products,
services, and building design.
• High Quality Food - top distributors on all food products are used.
(41% food costs at Outback/ 30% industry average)
• Good Service - servers have a three table station maximum.
• Community Service - fund raisers, little leagues, etc.
• Value - consumer perception is great value.
• No Reservations - no holding tables creates higher table turnover.
• Management - there are managers on the floor as well as in the hot food
window expediting food at all times.
• Teamwork - all food is run as soon as it comes out by the first available
server.
• Kid Menu - extensive and generous in portions.
• Steak Cooking Procedures - steaks are undercooked which gives the
consumer the opportunity to cook-up the steak rather than costing the
company a whole new steak for a re-cook.
• Profitability - a 14% profit margin, 28% return on assets, 23% ROE.
• Solvency - 25% debt ratio, Times Interest Earned is 143.7%, & debt/equity 33%.
page 25

WEAKNESSES
• Insurance Rates - increased liability
• Alcohol Consumption Decrease - Drinking laws and MADD
• Economy - disposable income of the consumer is directly related to their
dining out expenditures.
• Not Constantly Innovative - not always updating current products, services,
and building design.
• Employee Turnover - three table stations may not generate enough tips for
servers to stay.
• Unhealthy Food - the market may discover how the Outback prepares their
food (flat grilled in butter) and boycott them (Outback Special = 144 fat grams).
• No Reservations - consumers do not like to wait for 15 minutes to 2 hours.
• Teamwork - consumers may not like other servers delivering their food
because they have not established a relationship with the other servers.
• Steak Cooking Procedures - since steaks are under-cooked the consumer must
be educated by the server which does not always happen.
• Point of Sale System - archaic in nature leaving employee theft
opportunities as well as eating up valuable server time.
• Liquidity - a current ratio of .96 and a quick ratio of .58.
OPPORTUNITIES
• National/International Expansion - franchising, joint ventures, corporate
expansion (widening global market: the European Community, NAFTA, etc.)
• Related Diversification - capitalize on their business savvy & good name and
move into related markets.
• Increased Menu Diversity - a market segment is making a move towards
healthier foods.
• Consumer Demand on Dining Out - the greatest consumer market is eating
healthier at home while increasing their “unhealthy” dining out habits.
• Strengthening of Long-Term Market Position - through site selection.
page 26

THREATS
• 1986 Tax Reform Act - business deduction from 100% - 80%
• Increased “Sin” Taxation - the taxes created especially for pleasure products
such as cigarettes and alcohol.
• M.A.D.D. - Mother Against Drunk Driving: increased legislation against
drinking and driving without creating an alternative such as public
transportation.
• Competition - coming from behind at a rapid pace.
• Healthier Food Trends - the market may make a move toward healthier
foods.
page 27

•INDUSTRY ANALYSIS•
According to Michael Porter’s five forces model each corporation is most
concerned with the intensity of competition within their industry. The level of intensity
is determined by five basic forces. The stronger these forces the more companies are
limited in their ability to earn profits. (Hunger/Wheelen pg. 99)
The first force is the threat of new entrants. The Outback has benefited from
their market niche and has become a major visionary in the industry. Their vision and
rapid growth has created a strong market position which has created a barrier to entry.
The second force is rivalry among existing firms. The local and corporate
competition is fierce. The restaurant industry is a very competitive arena. The major
factors of competition being location, price, product, and service. However, these
factors are very trend related. The market trends are fickle beasts which must be kept
on top of. If you are behind the times and your competitors are quick at spotting
market trends, then you become functionally obsolete and your “loyal” consumer
moves next door as well as your profit oriented employees!
The third force is the threat of substitute products/services. The cost of
switching is not really a consideration, when it comes to the restaurant industry. For
instance, if there is a similar product/service offered at a lower price to the consumer
while at the same time satisfying all their needs, then it costs the consumer nothing to
switch. In addition, if the economy is in a recession and the consumer has a decrease in
their disposable income; the search for a substitute begins.
The fourth force is the bargaining power of buyers. The consumer is the all
mighty in the restaurant industry. If your patron decides the prices are too high or the
food & services are not up to standards, then they have the power to either cook the
food they wish at home or switch to a comparable competitor. Although one may
think that a single consumer lost is no great detriment to the business, that is wrong.
page 28

The power of \"word of mouth\" is immense in the restaurant business. Your restaurant
may be \"the thing\" today, however it can be half \"that thing\" tomorrow if the consumer
decides. Again, the power of buyers is great and you must strive to exceed their
expectations to keep them coming back.
The fifth and final force is the bargaining power of suppliers. The bargaining
power of suppliers is high when there are only a few suppliers. In the restaurant
industry this is not the case. There are many suppliers to choose from and the major
considerations when choosing a supplier are the services they offer, the quality of the
food, as well as their competitive prices. The only power they have is the cost of
switching. So, in essence, the bargaining power of suppliers is minimal.
The Outback is in a good position as of 1994. The level of intense competition is
still not there, but it is on its way. The Outback has created their own market niche
which others are picking up on rather quickly. These new firms will give the Outback a
run for their money. With companies like Longhorn, Lonestar, & Bugaboo searching
for a weakness in the Outback's strategy, one must be careful. Also, there is usually a
substitute when the restaurant or economy becomes lacking. The bargaining power of
consumers, as stated earlier, is the essential force in the restaurant industry whereas the
power of suppliers is minimal. Consequently, the Outback is in a good position to
capitalize on, as well as strengthen, their market niche and must do so while their
competitors strive for a better product/concept. In the restaurant industry, as with
most industries, the race is always on.
page 29

•STRATEGY GENERATION & EVALUATION•
Due to increased competition, the Outback must strengthen their leadership
position in the market in order to keep a long-term competitive advantage.
As of 1994 the Outback has grown to 230 restaurants in twenty-nine states in
only eight years - they should intensify national expansion efforts through business format
franchising while investigating the international market further. A second strategy is to
differentiate their self more by adding a specialized takeout section to their restaurants. This
strategy intensifies the guaranteed profit center while further making the consumer
aware of the Outback’s availability of to-go food. The third strategy is to offer more
healthy menu items while practicing a regional menu engineering strategy. The reason
behind this is simple, by offering a diverse menu specific to region, the Outback can
strengthen their market position. The fourth strategy is to intensify their related market
expansion efforts by increasing expansion efforts on Carrabba’s Italian Grills. The final
strategy is to alter their current strategy involving site selections. The current strategy is to
buy a 1.7 acre lot that costs no more than $600,000 with a total Outback Steakhouse cost
of $1.5 million that promises a return of 2 to 1 per year. I believe this strategy to be in
line with an extreme arrogance that is a result of short-term thinking -- to think that
one is invincible and one can maintain their leadership position by maintaining all the
same strategies from day one, is both arrogant and short-term.
These strategies will be evaluated with three criteria in mind. The first criterion
will be estimated cost; the second criterion will be potential profit; and the third
criterion will be reduced portfolio risk through related diversification.
page 30

STRATEGY ONE
The Outback should intensify their national expansion efforts through business format
franchising while investigating the international market further.
Franchising is a dominating force in the distribution of goods and services. It is
predicted to be the primary way of doing business by the year 2000 and according to
the United States Congress, \"franchising is essentially a contractual method for
marketing and distributing goods and services of a company (franchisor) through a
dedicated or restricted network of distributors (franchisees).” Under the terms of a
legal franchise contract, a franchisor grants the right and license to franchisees to
market a product/service using the trademark and/or the business system developed
by the franchisor. The franchisor, the Outback, must provide the product, a proven
marketing plan or business format, management and marketing support, and training.
In the perfect franchise arrangement, everyone wins: the Outback expands their
number of outlets and gains additional income; the franchisee has a business of his or
her own. Franchising is no longer considered a get-rich-quick method of doing
business. In fact, it is being used as a business strategy for successfully penetrating,
developing, dominating, and achieving a disproportionate share of the restaurant
market. (Khan, 92)
Business format franchising is the type of franchising the Outback should pursue.
It involves a complete business format rather than a single product or trademark.
Business format is a relatively new concept of franchising and is characterized by an
ongoing business relationship between the Outback and the franchisee. Business
format franchising not only includes product, service, and trademark, but the entire
business concept itself -- a marketing strategy and plan, operating manuals and
standards, quality control, group purchasing power, research and development, and a
continuous process of training, assistance, and guidance. The franchisee is required to
page 31

comply with the Outback's guidelines pertaining to all aspects of the business, including
operating procedures, the quality of the products and services, and the physical
appearance of the business facility. There is always an ongoing relationship between
the Outback and the franchisee.
A point that must be stressed is that the broad market segment the Outback is in,
the Dinner House/Family/Steakhouse segment, has twenty-one percent of the dinner
chain market (as illustrated below). The Outback must franchise to capture not only
more of their segment, but to capture more of the entire market itself. With 230
restaurants in twenty-nine states and Lonestar quickly rising, the further expansion
potential is immense as well as necessary.
Steak Dinner House Sandwich Cafeteria Chicken
Hotel Family Pizza Other
Top 100 Market Share
Pizza
Family Other
Hotel 10%
7% 5% Steak
Chicken 6%
8%
5%
Dinner House
6%
Cafeteria
13%
Sandwich
40%
page 32

The cost would be low when compared to pure company expansion and the
potential profit, as stated earlier, is quite large (currently 50 stores are franchised which
brought $3.6 million in revenues during 1994). Another 50 stores would more than
double that amount. And, without question, you reduce portfolio risk by diversifying
into new consumer markets without the tremendous capital expense. In addition, the
franchise contract should include a buy-back clause so the entire Outback system can be
company owned.
page 33

STRATEGY TWO
The Outback should differentiate their-self from the Dinner House market by adding a
take-out/drive-through section to their already successful restaurant services.
By constructing and connecting a specialized take-out addition to the kitchen, the
Outback enters a new market. With a takeout business unit added to the Outback you
can increase profits. The Outback already offers the same menu items in a to-go
package but it is not widely known or used. The proposed addition should be
connected to the kitchen so as to increase speed. The addition would have a pull up
window and all orders must be called-in in advance. This would add to the consumer
service aspect of the strategy. The target market would be local businesses for those
Outbacks that are open for lunch and local residents who wish to dine at home for
dinner (there are many). The idea behind this concept is for the consumer to call ahead
with the order and when they arrive at the window, the order is ready.
The only costs involved in this alternative are the building costs. Although these
costs would be high initially, the investment would pay off in the future due to the
excellent potential for sales and therefore profits. Additionally, by entering the takeout
market, you diversify and therefore reduce portfolio risk.
Guestimated cost per drive through unit addition $3,000
A guestimated increase of 70 entrees per week at a $14 per person average equals
increased sales of $51,000 per store.
$51,000 per store times 230 stores equals $11.7 million in increased revenue at a 14% net
profit margin before income taxes means $1,642,200 in the pocket before taxes for
spending only $690,000.
page 34

STRATEGY THREE
The Outback should include more ‘secret’ healthy menu selections while practicing a
regional menu engineering strategy.
The idea behind ‘secret’ healthy menu items is simple. The perception of many
consumers is that healthy menu items do not taste good. In addition, by offering menu
items that are not as bad for you is a proactive strategy. By educating the employees of
the new healthy menu items which are on the menu but secret, those consumers
wishing for healthy menu items need only to act like they are health conscious.
For example, I am currently a waiter at an Outback and many consumers are
asking for no butter on their menu selections. By doing this what else is being added to
help with flavor enhancement? Nothing at this time. The Outback also offers one
healthy menu item which might have a 30% repeat rate (the pasta pemberton). There
are many ways to create healthy menu items without making them taste so bad and I
doubt a Creole chef would have any idea how to do so.
I will tell you right now, that the generation ahead of me, my generation (I am
25) and all generations behind me are health conscious. The Outback currently throws
butter on everything and flat grills their steaks while ladling them in butter. As an
example, the Outback Special has 144 grams of fat (Newsweek). Imagine if someone
decides to target the Outback as some of the worst food for you on the planet, they
wouldn’t have a hard time proving it and I doubt the publicity would be good.
Before beginning with the menu engineering section, the need to implement
regional menu items should be substantiated. As the Outback stands now, there are no
menu differences throughout the United States. The costs of this strategy may
outweigh the savings. For example, here in Las Vegas we get many spice complaints
and as a reactive response the server must now warn everyone who eats at the
Outback. Also, we get many requests for rice. A cheap healthy substitute to french
page 35

fries, loaded potatoes, and butter filled vegetables. By catering to region, the Outback
would be using a more long-term strategy. California, for example, is not very
receptive to the Outback concept. Research should be done as to why that is.
By adding new healthy menu items in addition to regional menu items in certain
test markets while practicing a menu engineering strategy, you can test your
success/repeat rate as well as your contribution margin.
Menu engineering is a marketing oriented approach to the evaluation of current
and future menu pricing, design, and content decisions. The unique feature of menu
engineering is its ability to classify menu items; not only based on menu selling price,
but also based upon the menu sales mix. It is the incorporation of these factors that will
help insure proper menu selection on the new Healthy Choice dishes as well as re-
engineering certain dishes at the regional level. In essence, menu engineering requires
management to orient their-self toward the number of dollars that a menu contributes
to profitability, not just total cost percentage monitoring. In other words, menu
engineering is primarily concerned with the achievement of target cost percentages.
The menu engineering approach requires that attention be focused on three
critical elements (Kasavana, 82):
• Consumer Demand - the overall number of consumers served.
• Menu Mix (MM) - an analysis of consumer preferences in
menu item selection (related to demand elasticity).
• Contribution Margin (CM) - an analysis of the contribution
margin (gross profit) for each menu item (related to price
elasticity).
Once the contribution margin and the menu mix percentage is calculated,
ranking and classification occurs (as shown in the table on this page along with the
modified BCG Portfolio Matrix on the following page).
page 36

Pre-Matrix Table
CM MM% Classification
High High Star
Low High Plowhorse
High Low Puzzle
Low Low Dog
STARS
These are the most profitable items on a menu and may be a restaurant's
prestige or signature item. Decision action appropriate for STARS are:
• Maintain rigid specification for quality, portion size, and presentation.
• Locate this item in a highly visible position on the menu.
• Test for price elasticity.
PLOWHORSES
These menu items are relatively popular; however, they yield lower contribution
margins than the menu's average contribution margin. Plowhorse items are often
demand generators and are important to a restaurant's appeal to the price conscience
market segment. Decision actions for these items include:
• Test for price sensitivity
• Relocate to a low profile on the menu
• Combine with low cost items to achieve greater profit
• Consider portion reduction
page 37

Matrix
page 38

PUZZLES
These items yield high contribution margins but are low in popularity. The
appropriate decision actions suggested for puzzles are:
• Take the item off the menu
• Reposition and feature the item in a more popular location of the menu.
• Rename the item
• Decrease the price
DOGS
These items are the menu's losers - they are unpopular and provide a low
contribution margin. Dog decision actions are:
• Take the item off the menu.
• Use tight control methods on portions and cost.
• Keep item in inventory for requests only
As you can see, an excellent method of insuring profit, and an even better
method for evaluating the new healthy menu items as well as regional menu items.
There is little cost except in training and supply acquisitions; and by having a great
diversity in food items, you attract a larger consumer market. In addition, there is an
excellent opportunity for profit that is practically guaranteed.
page 39

STRATEGY FOUR
The Outback should intensify their related market expansion efforts.
The Outback is currently diversifying their organization by entering the
casual Italian dinner market. The Outback currently has a 50% interest in twelve of
these restaurants which are named Carrabba’s Italian Grills. They are currently in the
development stage but show promise. By intensifying the expansion on Carraba’s
Italian Grills the Outback reduces their portfolio risk. In addition, this will strengthen
the company when the Outback begins to mature and needs a revitalization strategy
implemented.
page 40

STRATEGY FIVE
The Outback should change their site selection strategy from buying B-sites to buying
high-end B-sites & low-end A-sites while reducing their market saturation strategy.
Currently, the Outback practices a site selection strategy that requires a 1.7 acre
lot that costs no more than $600,000 -- a B-site. The total package for an Outback being
about $1 million plus land. This total package must promise a return of 2 to 1 per year.
The reasoning behind this strategy is strong but not in line with long-term thinking.
The Outback believes they do not need A-sites located near down-town areas
because they are not open for lunch and the suburban B-sites do quite well. I would
like to argue that the suburban B-sites do quite well because of the quality of food and
service the Outback offers. For each Outback, the word of mouth advertising is
immense. For this reason, I believe the Outback strategy to be short-sighted. When
the competition comes from behind in a fast manner and chooses A-sites while offering
a similar or even better product, then the Outback B-sites have become functionally
obsolete.
In congruence with the site selection strategy, the Outback practices a market
saturation strategy which is also short sighted. Again, once competition moves in with
a strong product, the consumer is given more to choose from. As it stands now, the
Outback is pretty much the casual steakhouse in every market.
The combination of these two strategies gives cause to worry about one very
important aspect that may have been overlooked. This one aspect is the cost of closing
down an actual Outback unit. One Outback unit with boards on their windows can
destroy an entire market. In fact, McDonalds will actually operate a store at a loss to
prevent such a circumstance. The reason is simple, the consumer will ask him or herself
how could such a thing happen and come to the conclusion that the Outback must be
page 41

going downhill for some bizarre reason. That is all the consumer has to think. You see,
this one image in the mind of the consumer can destroy the entire market the Outback
has tried so hard to capture.
As an example, I will use the four (soon to be five) Outbacks located in the Las
Vegas area. There are currently four units in operation with the Flamingo & Pecos
store being only 4.5 miles away from the Green Valley location. The rest being
aproximately ten to fifteen miles apart in a triangle formation. They will soon add a
fifth in the Lakes area which will be similar in distance.
LAS VEGAS AREA OUTBACKS
Land Cost Location YTD sales (June 30, 1995)
$485,000 Flamingo & Pecos $1.4 million
$455,000 Sunset in Green Valley $1.5 million
$475,000 Rainbow & I-95 $1.7 million
$575,000 Flamingo across from Rio $1.9 million
By having five units in the greater Las Vegas area, there is no doubt that the
market has been saturated. Secondly, by using the four units above as a basis for
comparison we see that the best site, the Rio location, may be considered a high-end B-
site or a low-end A-site due to its cost as well as its prominent location directly on
Flamingo next to the Strip & located directly across from a prominent Hotel/Casino.
By spending an extra $100,000 on land the store sales increase approximately
$900,000 per year of which 14% is considered Net Profit Margin before Income taxes.
So, project A will be the low-end A-site costing $1.6 million & returning $3.8 million in
sales per year for five years and project B will be the B-site costing $1.5 million &
returning $3 million in sales per year for five years. Internal Rate of Return over a five
page 42

year period for project B is $10,299,600 and for Project A is $13,046,160. A NPV of $3
million more for project A. Enough said!
page 43

•RECOMMENDATIONS•
I believe, and strongly recommend, that the Outback implement all five
strategies. The Outback should intensify national expansion efforts through business
format franchising while investigating the international market further; they should
add on a take-out/drive through section; they should create ‘secret’ healthy menu
items while practicing a regional menu engineering strategy; they should intensify their
related market expansion efforts through the Carrabba’s Italian Grill expansion; and
they should alter their current site selection strategy. As shown in the strategy
evaluations, all the strategies have excellent potential profit, they all reduce portfolio
risk, and they all are relatively inexpensive.
Each and every strategy can be initiated now, however, it would be wise to test
the drive-through concept before complete implementation. The only major roadblock
to implementing all these strategies is the amount of manpower and time needed.
These alternatives will require a great amount of analysis and evaluation. They must be
implemented with extreme care.
Again, all the strategies need to be implemented as soon as the time and cash allows.
All are relatively easy and all are excellent avenues for growth!
page 44

• THE OUTBACK STEAKHOUSE INC. UPDATE •
(Merrill Lynch, July 31, 1995)
Second Quarter of 1995
“Ossi’s favorable performance illustrates its sustainable leadership position in the
casual dining sector. The Outback Steakhouse concept’s broad appeal and value
product continues to capture market share as measured by same store sales gains
(+1/4%), despite its enviable $3.3 million average unit volume. We are encouraged by
the concept’s in new markets which is further evidence of its broad appeal.
Management also noted that the southern California units have been improving after a
prolonged period of regional economic weakness.
However, rising labor (+0.8% of revenue) and food (+0.6% of revenue) costs
offset the sales leverage and pressured margins. The operating margin declined 0.8% to
15.8%. Labor pressures are expected to continue due to 1) unit expansion into tighter
labor markets, 2) employee health insurance and 3) Carrabba’s expansion with labor
costs at 30% of sales vs. 20% at Outback Steakhouses. The favorable trend in food costs
was interrupted by a relatively poor onion crop, augmented by California floods which
pressured produce prices during the quarter. We believe these one-time events will not
impair the favorable trend in food costs.
Management has re-engineered Carrabba’s menu to generate a more
competitive average check ($16.25) and offer a mix of entrees which improves labor
productivity and increases table turns. Management is encouraged by the favorable
customer response but there is room for improved sales and margins before the
concept is as attractive an expansion vehicle as Outback Steakhouse. The recent crop of
4 units are producing $2.5 million annualized sales volumes and the cost structure
(higher labor, lower food) provides greater operating leverage (vs. Outback),
benefiting from employee productivity and table turns. However, a $3 million annual
sales level at the current cost structure would generate comparable margins to Outback.
While we are encouraged by the Carrabba’s concept, we don’t foresee a significant
earning impact until 1997.”
page 45

•APPENDICES•
HORIZONTAL ANALYSIS OF THE CONSOLIDATED STATEMENT OF INCOME
1994 94 1993 93 1992 92
R E V E N U E S .............................................. $451,916,000 2.38 $309,749,000 1.64 $189,217,000 1.00
COSTS AND EXPENSES
Cost of revenues................................. 175,618,000 2.39 121,290,000 1.65 73,475,000 1.00
Labor and other related expenses....... 95,476,000 2.58 65,047,000 1.75 37,087,000 1.00
Other restaurant operating expenses.. 93,265,000 2.15 64,603,000 1.49 43,370,000 1.00
General & administrative expenses.... 16,744,000 1.83 12,225,000 1.33 9,176,000 1.00
(Income) from operations of affiliates (1,269,000) - (333,000) -
379,834,000 2.33 262,832,000 1.61 163,108,000 1.00
INCOME FROM OPERATIONS.................... 72,082,000 2.76 46,917,000 1.78 26,109,000 1.00
NON-OPERATING INCOME (EXPENSE)
Interest income.................................. 512,000 .36 1,544,000 1.08 1,428,000 1.00
(424,000) 1.18 (369,000) 1.03 (360,000) 1.00
Interest expense.................................
88,000 1,175,000 1,068,000 1.00
.08 1.1
Income Before Elimination of Minority
Partners’ Interest and Income Taxes 72,170,000 2.66 48,092,000 1.77 27,177,000 1.00
Elimination of Minority Partners’ Interest 11,276,000 2.76 7,378,000 1.80 4,094,000 1.00
Income Before Provision for Income Taxes.. 60,894,000 2.64 40,714,000 1.77 23,083,000 1.00
Provision for Income Taxes....................... 21,602,000 3.18 13,922,000 2.05 6,802,000 1.00
$39,292,000 2.41 $26,792,000 1.65 $16,281,000 1.00
Net Income..............................................
$0.89 2.28 $0.61 1.57 $0.39 1.00
Earning per Common Share......................
Weighted Average Number of Common
43,997,000 1.06 43,738,000 1.05 41,504,000 1.00
Shares Outstanding...........................
PRO FORMA:
Provision for Income Taxes....................... 22,286,000 2.70 15,472,000 1.88 8,245,000 1.00
$38,608,000 2.60 $25,242,000 1.70 $14,838,000 1.00
Net Income..............................................
$0.88 2.44 $0.58 1.61 $0.36 1.00
Earnings per Common Share.....................
page A

VERTICAL ANALYSIS OF THE CONSOLIDATED STATEMENT OF INCOME
1994 94 1993 93 1992 92
R E V E N U E S .............................................. $451,916,000 100 $309,749,000 100 $189,217,000 100
COSTS AND EXPENSES
Cost of revenues................................. 175,618,000 39 121,290,000 .39 73,475,000 .39
Labor and other related expenses....... 95,476,000 .21 65,047,000 .21 37,087,000 .20
Other restaurant operating expenses.. 93,265,000 .21 64,603,000 .21 43,370,000 .23
General & administrative expenses.... 16,744,000 .04 12,225,000 .04 9,176,000 .05
(Income) from operations of affiliates (1,269,000) - (333,000) - -
379,834,000 .84 262,832,000 .85 163,108,000 .86
INCOME FROM OPERATIONS.................... 72,082,000 .16 46,917,000 .15 26,109,000 .14
NON-OPERATING INCOME (EXPENSE)
Interest income.................................. 512,000 1,544,000 1,428,000
(424,000) (369,000) (360,000)
Interest expense.................................
88,000 1,175,000 1,068,000
Income Before Elimination of Minority
Partners’ Interest and Income Taxes 72,170,000 .16 48,092,000 .16 27,177,000 .14
Elimination of Minority Partners’ Interest 11,276,000 .03 7,378,000 .02 4,094,000 .02
Income Before Provision for Income Taxes.. 60,894,000 .13 40,714,000 .13 23,083,000 .12
Provision for Income Taxes....................... 21,602,000 .05 13,922,000 .05 6,802,000 .04
$39,292,000 $26,792,000 $16,281,000
Net Income.............................................. .09 .09 .09
$0.89 $0.61 $0.39
Earning per Common Share......................
Weighted Average Number of Common
43,997,000 43,738,000 41,504,000
Shares Outstanding...........................
PRO FORMA:
Provision for Income Taxes....................... 22,286,000 .05 15,472,000 .05 8,245,000 .04
$38,608,000 $25,242,000 $14,838,000
Net Income.............................................. .09 .08 .08
$0.88 $0.58 $0.36
Earnings per Common Share.....................
page B

LIQUIDITY
Outback
Current Ratio Lonestar
Longhorn
Bugaboo
14
Industry Avg.
12
10
8
6
4
2
0
1991 1992 1993 1994
Outback
Quick Ratio Lonestar
Longhorn
Bugaboo
12
Industry Avg.
10
8
6
4
2
0
1991 1992 1993 1994
page C

PROFITABILITY
Outback
Asset Turnover Ratio Lonestar
Longhorn
Bugaboo
2.5
Industry Avg.
2
1.5
1
0.5
0
1991 1992 1993 1994
Outback
Profit Margin Before Income Tax Lonestar
Longhorn
Bugaboo
0.25
Industry Avg.
0.2
0.15
0.1
0.05
0
1991 1992 1993 1994
page D

Outback
Return On Total Assets (Dupont) Lonestar
Longhorn
Bugaboo
0.3
Industry Avg.
0.25
0.2
0.15
0.1
0.05
0
1991 1992 1993 1994
Outback
Return on Common Equity Lonestar
Longhorn
Bugaboo
0.3
Industry Avg.
0.25
0.2
0.15
0.1
0.05
0
1991 1992 1993 1994
page E

SOLVENCY
Outback
Debt Ratio Lonestar
Longhorn
Bugaboo
0.8
Industry Avg.
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1991 1992 1993 1994
Outback
Times Interest Earned Ratio (EBIT) Lonestar
Longhorn
Bugaboo
150
Industry Avg.
100
50
0
1991 1992 1993 1994
page F

Outback
Debt/Equity Ratio Lonestar
Longhorn
Bugaboo
3
Industry Avg.
2.5
2
1.5
1
0.5
0
1991 1992 1993 1994
page G

•ACTION PLAN•
Action Explanation-Reason-Logic By Whom Timing
FRANCHISING Secure Leadership Market Position in Immed.
short-term then buy back later.
IncreaseProfit
Increase Shareholder Wealth
TAKE-OUT/DRIVE-THRU Related Diversification Test
Increase Sales Volume/Profit
Increase Shareholder Wealth
MENU ENGINEERING Diversify Menu Regionally Immed.
Strengthen Market Position
Increase Sales Volume/Profit
Increase Shareholder Wealth
SITE SELECTION Decrease Market Saturation Immed.
Strengthen Long-term Market
Position
Increase Sales Volume/Profit
Increase Shareholder Wealth
RELATED DIVERSIFICATION Reduce Financial Risk Immed.
Increase Sales Volume/Profit
Increase Sharholder Wealth
page H

•CITED AND UNCITED REFERENCES•
Dun & Bradstreet Credit Service. Strategic Industry Study - Restaurant. 1985
Troy, Leo. Almanac of Business and Industrial Financial Ratios. 1995 pages 10-19 and
257
Annual Report. Outback Steakhouse, Inc. 1994
Hayes, Jack. Company Profile: Outback Steakhouse Nation’s Restaurant News. March
27, 1995 pages 51-86
Gibson, Charles H. Financial Statement Analysis 1995
Andrew, William P & Schmidgall, Raymond S. Financial Management for the
Hospitality Industry 1993
Schmidgall, Raymond S. Hospitality Industry Managerial Accounting 1990
Investext 1. Complete Company Records on the Outback Steakhouse, Inc. 12/31/93
Investext 2. Complete Company Records on Longhorn Steaks, Inc. 12/31/93
Investext 3. Complete Company Records on Lone Star Steakhouse & Saloon, Inc.
12/31/93
Certo & Peter. Cases In Strategic Management. 1988
Hunger & Wheelen. Strategic Management. 1993
Kahn. Restaurant Franchising. 1992
Kasavana. Menu Engineering. 1982
page I