These six restaurant chains are in deepest trouble in pandemic
Casual dining chains were already facing challenges before COVID-19, hurt by the rise of fast-casual competition and increased food costs.
Now, several of the largest restaurant companies in the U.S. are struggling with capacity restrictions on indoor dining and attempting to lure customers with takeout in a bid to avoid financial disaster.
While the nation’s largest publicly traded restaurants face a less than 1 in 5 chance of defaulting in the next year, according to the new report by S&P Global Market Intelligence, they remain in perilous terrain.
Analysts are particularly concerned about the coming winter, which will eliminate outdoor seating options for many restaurants, and the demise of the extra $600 in unemployment benefits that had been available for jobless Americans.
Here are the six largest publicly traded restaurant chains that are most likely to default:
Dave & Buster’s
This chain has a 16.1% chance of defaulting in the next year, according to S&P. It has the worst credit rating among the nation’s largest restaurant companies.
Dave & Buster’s recorded a net loss of $43.5 million for the quarter ended in early May. But the company has taken steps to raise money that have improved its chances, according to S&P.
Outback Steakhouse parent Bloomin’ Brands
This chain faces a 13.2% chance of defaulting.
The company said in a July statement that comparable restaurant sales at locations that are allowing indoor dining fell 10.7% for the week that ended July 19, versus a year earlier.
But the company said it was moving in the right direction.
“Across our U.S. portfolio, we experienced consistent weekly sales momentum throughout the second quarter as we adapted to this evolving environment. This ... enabled us to generate positive cash flow for the month of June,” the chain said in the statement.
Denny’s
Denny’s faces an 11.9% chance of defaulting.
Denny’s sales had been improving in June, but its year-over-year sales decline worsened in July, according to the company’s most recent earnings report. Sales for the week that ended July 22 were down 41%, compared with a year earlier.
The Cheesecake Factory
Having failed to make rent payments on time in spring, The Cheesecake Factory has been facing financial troubles since the start of the crisis. On the other hand, experts say the company’s decision not to pay rent on time might have been a negotiating tactic with landlords.
Still, the company faces an 11.7% chance of defaulting on its debts, according to S&P.
Applebee’s and IHOP
Dine Brands Global, which owns both chains, has an 11.3% chance of defaulting. The company’s IHOP chain is faring worse than Applebee’s.
In the month leading up to July 26, sales at Applebee’s locations fell 18.4%, compared with a year earlier, while sales at IHOP declined 37.6%.
BJ’s Restaurants
BJ’s Restaurants, known for its pizza and beer, has a 9.3% chance of defaulting.
As with Denny’s, the situation at BJ’s deteriorated from June to July. The company said its late July sales were down about 40% from a year earlier, compared with a decline of about 30% in June.