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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: Joe, how well have the restaurant stocks in your universe performed in 2001 year to date? When we last convened, back in December 2000, your top choices in the group were Applebee’s, Darden and Wendy’s. Have these stocks lived up to your expectations, and those of investors?

Mr. Buckley: Yes, I think so. The restaurant group, overall, has performed quite well. Applebee’s (Nasdaq:APPB) has been a very strong performer, up 45% in calendar 2001. Darden (NYSE:DRI) has performed quite well rising 30% year to date, and Wendy’s (NYSE:WEN) is up about 5% so far this year. Overall, the restaurant group has performed well, and I think the performance is a function of a couple of things. I think it’s a function of relative earnings growth, and I think it’s the status of the industry as a safe haven, a defensive investment vehicle.

TWST: To what would you attribute the disappointing earnings in the fast-food sector relative to casual dining?

Mr. Buckley: I think there are a couple of factors. I think that the underlying secular growth rate is far slower in fast food, far faster in casual dining. As sales in casual dining slow, they slow from a mid-single-digit rate to a low single-digit rate of increase, whereas in fast food they’ve slowed from a low single-digit rate to flattish or negative numbers in some instances. That’s part of it. I think, too, that the breadth of the casual dining menu has permitted price increases to be implemented much more easily. In fast food, that’s a lot harder to do. I think, on top of that, although energy costs are starting to go back down, energy costs hit the fast-food consumer much harder. The fast-food sector, historically, has been viewed as very defensive, the most defensive sector of the industry, and that has really not been the case in the last 15 months. We saw quick service sales start to slow down in the spring of 2000, and they’ve been a lot more volatile and a lot more erratic ever since. While casual dining has clearly slowed down most recently in the last quarter, the sector still has had a lot more underlying strength behind the numbers.

TWST: How are the companies dealing with higher costs for energy, Joe?

Mr. Buckley: Energy has been a major problem. Most companies are measuring it in cents per share, which underscores the significance of it. But I suspect we may be seeing the peak impact right now. All commodity markets are volatile, and I’m not going to get into the energy price predicting business anytime soon, but it looks like the negative impact is peaking. I was pleasantly surprised that Wendy’s managed the utility expenses such that they were only up 20 basis points as a percent of sales for the June quarter. Other companies have been talking anywhere from 50 to 80 basis points of margin pressure from energy. I’m not sure how Wendy’s managed the costs so well but it was impressive.

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.