What is in this article?:
- Analysts: Conditions favor fast-casual chains in 2Q
- Panera, Chipotle among analyst favorites
- Over-inflated worries about costs
David Tarantino of Robert W. Baird & Co. projects demand for restaurants to be similar in 2013 to what it was in 2012.
Over-inflated worries about costs
Collier also wrote that food and labor cost pressures likely would not be the roadblock to earnings growth seen in previous years, as commodity inflation and effects of the now-delayed implementation of the Affordable Care Act “appear mostly benign.”
She projected food cost inflation for fiscal 2013 to be between 2 percent and 3 percent, slightly below Bernstein of Barclays Capital’s 3-percent-to-5-percent forecast.
Tarantino added that upside from the commodities market would not be realized in the second quarter because spot prices and futures prices for corn and grains are not particularly favorable. “But we think a continuation of lower prices has potential to aid the earnings outlook for some in the second half of 2013 and into 2014, given the timing of contracting for many key protein prices by most restaurant chains,” he wrote.
The big concern for restaurants on their labor line the past few years has been the Affordable Care Act’s mandate that large employers cover their workers’ health insurance, but with that requirement delayed until 2015, companies’ upfront costs would be “fairly minimal” and their cost visibility would improve, Sterne Agee’s Collier wrote.
“It seems that the Affordable Care Act may not be as costly as initially anticipated,” Barish of Jefferies wrote in agreement. “It is still too early for most companies to determine their specific financial burden, but the employer penalties will now be delayed until 2015, and many employees may ultimately end up opting out of coverage.”
He also noted that many chains might opt to roll out their health insurance plans in 2014 anyway, ultimately adding an estimated 0.2 percent to 0.4 percent to their labor costs.