The economic shutdown has not surprisingly had a major impact on restaurants. Now it is rearing its head in another, and perhaps unexpected way. Beef shortages have forced nearly 1000 Wendy's (WEN) locations to pull burgers off the menu. How ironic that the company's "fresh, never frozen" mantra as it applies to burgers is the culprit here. So far WEN is refusing to switch to frozen beef. I smell an advertising campaign goldmine for the company if and when we get back to "normal" if it stays the course on fresh beef.
Elsewhere in restaurant land, companies are raising capital, trying to stay afloat. Today, Bloomin' Brands (BLMN) is pricing $200 million of 5% convertible senior unsecured notes, maturing in five years. Chuy's Holdings (CHUY) filed a mixed shelf registration for $100 million (common and preferred stock, debt, warrants). On Monday, Dave & Buster's (PLAY) sold $100 million worth of stock in a private equity offering (Jefferies). That sent shares down nearly 16%. In fact, last Thursday PLAY shares closed at $15.66, and since then are down 29%.
It has not been all "bad" news in the sector, however, although any seemingly good news for restaurants requires a good dose of context. Brinker International (EAT) rose 30% on Wednesday after reporting better than expected third quarter earnings ($1.28 versus 65 cent consensus). Keep in mind however, that quarter ended March 25. The company did not switch to a take-out model until March 8th, so it is not an accurate representation of the pandemic restaurant economy. Here's a better indication: company owned comparable restaurant sales were down 64.6% for the week ended April 1st, but have "improved" to -46.8% for the week ended April 22. EAT shares have given back most of the post earnings gains over the past five trading sessions, however. Down 53% year-to-date, still, EAT shares have recovered off their $7.62 March 18th low closing at $19.75 yesterday.
Dine Brands Global (DIN) also had a big day last Thursday (+24%) after reporting better than expected first quarter earnings ($1.45 versus $1.14 consensus). Twenty-three days of shutdown during the quarter took 10 consecutive weeks of same store sales growth to a 10.6% contraction for the quarter for Applebees, while IHOP's same store sales fell 14.7%. Similar to EAT, shares have given back all of the earnings-related gains over the past four sessions.
I must admit, I've recently frequented a drive through or two and it's still hard to beat McDonald's (MCD) quarter pounder with cheese. It was recently reported that 99% of U.S. MCD locations were still operating in limited capacity (75% including international). It will be interesting to see next quarter's results which will be dominated by the limited capacity operations.
Yesterday, while stopping to get gas at a rest stop on the Pennsylvania turnpike, I noticed a Steak 'n Shake counter operation that was open. Unfortunately, it was not a good experience, and I am pretty easy to please. That's two in a row, although at least the restaurant was open, and it's perhaps unfair to judge an operator in these circumstances. The Steak 'n Shake chain has become a disaster for parent Biglari Holdings (BH) (BH-A) which initially "fixed" the chain several years ago but more recently has seen same store sales tank. It has "temporarily" closed underperforming restaurants, and began a new franchise program, selling Steak 'n Shake franchises to "qualified" franchisees for $10,000, plus up to 15% of revenue and 50% of store profits, which seems like a "hail Mary".
Meanwhile, the company once again has Cracker Barrel (CBRL) (BH owns 8.6% of the shares, it once owned nearly 20%) in its sights. After a few failed attempts to gain board seats, BH recently fired off a letter to CBRL concerned about CBRL's handling of its exit and investment losses from Punch Bowl Social, in which it invested in 2019. Can a proxy fight be far behind?
