Pandemic adds to restaurants’ woes
Chains struggle to stay afloat amid coronavirus
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.
The owners of chains such as Outback Steakhouse, Applebee’s and The Cheesecake Factory are on a newly updated list of national restaurants that are facing the highest likelihood of not paying back their debts. When companies
default on loans, they are often forced to file for bankruptcy protection, close locations or liquidate.
California Pizza Kitchen, has already filed for Chapter 11 bankruptcy protection, with plans to close some locations.
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. Congress is debating whether to extend those benefits.
“The odds that the largest publicly traded U.S. restaurants will default fell in recent months as states allowed businesses closed by the coronavirus pandemic to reopen,” S&P says in the new report. “But the ongoing financial hits from the virus and uncertainty over whether laid-off consumers will receive expanded unemployment benefits continue to pressure the industry as more companies enter bankruptcy.”
Sales at restaurants and bars fell 26% in June, compared with a year earlier, according to S&P.
But in contrast to sit-down chains, publicly traded fast-food companies are holding up well, in large part due to robust drive-through offerings.
Here are five 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, including securing new investment financing, that have significantly improved its chances of surviving without defaulting, according to S&P.
Outback Steakhouse parent Bloomin’ Brands
This chain, whose famous Bloomin’ Onion item shares a first name with the restaurant’s parent company, faces a 13.2% chance of defaulting.
The company said in a July 24 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.” the chain said.
Denny’s
Known for its all-day breakfast, Denny’s faces an 11.9% chance of defaulting.
Denny’s 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.
But CEO John Miller said in a July 28 statement that “we believe we are well-positioned to effectively navigate further impacts of the pandemic ...”
The Cheesecake Factory
The Cheesecake Factory has been facing financial troubles since the start of the crisis. 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%.