Restaurant Chains May be in Jeopardy
A Lehman Brothers analyst cautioned investors Monday the negative trends that have led to lower sales and profit at casual dining chains will continue to affect results in the third quarter.
As restaurants have struggled to pay a much higher bill for commodities like wheat and dairy, consumers fearing high gas prices and a weakened housing market have looked to save on meals. Chains have also had to pay higher wages due to a rise in the minimum wage at both the federal and state levels in many areas.
"Restaurants have faced a barrage of challenges, with the two greatest being pressure on revenue growth due to ongoing macro-consumer concerns as well as pressure on expenses with both commodity and labor costs stabilizing at elevated levels," said analyst Jeffrey Bernstein.
With those concerns at the forefront, casual dining chains, in particular, have suffered while quick-service concepts have taken advantage of consumers' desire from lower-cost, quality food, Bernstein said.
"From a revenue perspective, we believe quick-service restaurants will continue to benefit from perceived higher quality and healthier offerings at a faster pace and lower price," he said.
Quick-service concepts, which feature a casual-dining atmosphere combined with counter-ordering, are "in favor" heading into the third quarter due to their lower-priced menus, highly-franchised systems and strong international exposure, Bernstein said.
Bernstein said he is "most bullish" on fast food chains McDonald's Corp. and Burger King Corp. and burrito quick-casual chain Chipotle Mexican Grill Inc.
McDonald's shares rose 2 cents to $56.39 in midday trading while Burger King shares climbed 59 cents to $26.41. Chipotle shares, meanwhile, fell $1.30 to $126.24.
Casual dining operators, however, are "out of favor," he added, and may stay that way for at least the next year with many chains raising menu prices to cover the higher commodity and labor costs. Casual dining chains, which use waiter service rather than counters, are more affected by the minimum wage hike.
Bernstein said he is most cautious on Brinker International Inc. -- which operates the Chili's Bar & Grill chain -- as well as Cheesecake Factory Inc. and P.F. Chang's China Bistro Inc.
Bernstein noted P.F. Chang's warned investors already last week that it would report third-quarter earnings 5 cents to 7 cents below its previous forecast of 25 cents per share.
Brinker shares fell 31 cents to $27.99 and Cheesecake Factory shares dipped 32 cents to $24.74. P.F. Chang's shares dropped 40 cents to $29.27.
Published by AP
posted by Stock Administrator @ 4:19 PM
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