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Five analysts and top management from fourteen sector firms examine the Restaurant Industry sector in this special 91-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info404.htm

TWST: Mark, to what extent is the outlook for restaurants dependent on what happens to the economy, and what is your firm’s economist’s expectation for the economy in the second half of the year?

Mr. Kalinowski: That’s a very interesting question, because restaurants are almost in a Catch-22 — when you get very good growth in the economy in general, typically the restaurants will do well, but from a relative perspective, other industries can show much greater magnitude of improvement. Back in 1999, for example, when the economy was hot, restaurant fundamentals were the best of the decade, but our 50 company composite of restaurant stocks actually had their worst year of that decade. It’s not just a question of how the economy does, it’s also a question of how the fundamentals do, relative to other industries. Now, in terms of my firm’s outlook, we actually have been scaling back our outlook for the S&P 500 quite heavily, and I don’t think that we’re going to see an extremely robust economy any time before the end of the year.

TWST: Mark, what are you seeing in terms of same-store sales growth, and which chains are showing stronger than expected numbers?

Mr. Kalinowski: In our view, things are sluggish in the two major segments of the restaurant industry: fast food and casual dining. In fact, we recently came out and said that we have heard from multiple sources that July same-store sales for casual dining were pretty lackluster. That’s a little bit of a surprise, because there had been some commentary out there saying that perhaps the slowness in April and May was somewhat of an aberration, and things would get better after that. So far, we’re just not seeing that, so overall we are not recommending overweighting restaurant stocks, and one of the reasons is that we just believe the overall picture right now, in terms of same-store sales, is simply not favorable. That said, there are companies out there that we think can do quite well in a fairly weak environment. We’d cite Darden Restaurants. Again, we think Red Lobster and Olive Garden, which have strung together 13 straight quarters of beating the average casual dining concept same-store sales, will continue to do so.

TWST: Mark, what would your surprise story be?

Mr. Kalinowski: I would have to go with Jack in the Box (NYSE:JBX) on this. The company does have certain fundamental issues that they’re facing, so this is not a clear-cut story. But one thing that has really held earnings growth back lately is utilities costs. The company has about 40% of its company-owned restaurants in California, and as that state has battled rising utilities costs, it has hurt Jack in the Box by quite a bit. However, it seems as if things have started to turn on the utilities front. We’ve seen natural gas prices drop by two-thirds. California has not had a blackout since May 8. So even though we think that in the near term Jack in the Box’s utilities costs will still be unfavorable, starting in fiscal 2002 the outlook gets much better. In fact, we might see favorable utilities costs in the back half of fiscal 2002 for Jack in the Box. So given that the stock trades at a very inexpensive p/e, and that there seem to be signs of cost pressures turning, we’re recommending it. And there’s also the fact that same-store sales there have been doing quite well. In fact, we just bumped up our forecast for fiscal Q4 comps from 3.0% to 4.5%. Again, this is a name that certainly has its risks but could do quite well over the next 12-18 months.

This special conference issue includes:

1) Restaurant Industry - In an in-depth (13,000 words) Analyst Roundtable, Andrew Barish, Managing Director at Banc of America Securities, Joseph Buckley, Senior Managing Director at Bear, Stearns & Company, Mark Kalinowski, Vice President at Salomon Smith Barney and Janice Meyer, Managing Director at Credit Suisse First Boston, examine the outlook for the sector including, economic outlook, new restaurant concepts and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at nineteen sector firms asked market insiders about the ability of management teams to create shareholder value.

3) Restaurant Stocks - In an in-depth (3,500 words) Analyst Interview, Damon Brundage, Vice President of Equity Research at Raymond James & Associates examines the outlook for the sector and shares specific stock recommendations.

4) CEO and Sponsored interviews (average 2,500 words). Top management of fourteen sector firms examine the outlook for their firm and the sector.