NEW YORK —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
With the much-hoped-for-rebound in consumer spending nowhere in sight, even easier year-to-year comparisons did not help to smooth the rocky start of the third-quarter earnings season. Some companies, such as P.F. Chang’s China Bistro Inc., posted results observers deemed disappointing, and Sonic Corp. reported double-digit drops in revenue and profit. At McDonald’s, a strong third-quarter was tempered by cautious commentary on U.S. sales trends for October. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
“Earnings season has been difficult for restaurant stocks so far,” Joe Buckley, a securities analyst at Bank of America-Merrill Lynch, said in a report. “But one encouraging takeaway is that casual-dining sales are improving sequentially, based on October sales comments by P.F. Chang’s, The Cheesecake Factory and BJ’s Restaurants.” —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
Still, given widespread uncertainty about the timing of an upturn, many companies declined to issue guidance on their future expectations, and those that did were decidedly cautious, noting that for the foreseeable future discounting would continue as the strategy du jour to lure guest traffic—even at the expense of margin. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
“There remains uncertainty around when a sustained improvement in the economy may occur,” said Doug Brooks, chief executive of Brinker International Inc., during an investor call last month. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
The delayed recovery means continued messaging surrounding $1 items, value meals or combos, or free giveaways. For instance, Brinker’s Chili’s Grill & Bar chain is again promoting its three courses for $20 deal and McDonald’s is testing $1 breakfast items. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
Executives that did offer outlooks—and there were fewer than typical—didn’t see consumer spending improving until the second half of 2010. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
“Clearly, at this point we still feel like discounting is something that’s almost a requirement based on the consumer’s desires,” said Sonic chief financial officer Stephen Vaughan. “Our expectation is that as we move into calendar year 2010, that the external environment will improve…and [you] should be able to see less discounting as we move into the back half of the year.” —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
“[You] should be able to see less discounting as we move into the back half of the year,” said Stephen Vaughan, Sonic’s chief financial officer. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
Even Chipotle Mexican Grill Inc., one of the few restaurant companies to buck industry trends and post double-digit sales and profit growth in its latest quarter, expects 2010 to be muted. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
“Without any signs of improvement in consumer discretionary spending, we expect transactions and [same-store sales] trends during 2010 to be flat,” said John Hartung, chief financial officer at Chipotle. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
While cost-cutting has led to bottom-line improvements, it is a sales recovery that is needed for the long term. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
Companies are looking for positive same-store sales to drive corporate profits. At McDonald’s, for example, one percentage point change in U.S. same-store sales is estimated to equate to 3 cents per share in earnings, or about 3 percent of its latest-quarter per-share earnings. At The Cheesecake Factory Inc. one point of same-store sales improvements could lead to as much as 8 cents to 10 cents of earnings gains, or about 37 percent of its latest quarterly per-share earnings. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
Chili’s plans to create menu items that are more compelling so it is easier to walk away from promotions, officials said. The chain has tweaked preparation methods for its burgers and ribs. The new ribs will be slow-smoked over pecan woodchips rather than mesquite, and the hamburger patties, which had been delivered to stores pre-formed, are now hand-shaped in the kitchens using 100-percent USDA ground chuck. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
Longer term, Chili’s will focus on premium items, emulating the barbell pricing at many quick-service chains. Sonic earlier this year launched a value menu but is now adding more premium items. —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
“I have to say through this economy our No. 1 focus is on driving traffic,” said J. Clifford Hudson, Sonic’s chief executive, “but simultaneously we’re also putting in place initiatives to work to drive check.”— [email protected] —Since January restaurant companies have looked forward to the third and fourth quarters as providing a respite from their ongoing sales and profit woes. But so far that respite has failed to materialize.
