Thursday's announcement that Chuck E. Cheese parent CEC Entertainment was filing chapter 11 bankruptcy likely did not get the coverage it would have if CEC was still publicly traded. The company was taken private by Apollo Global Management APO in 2014, and plans to go public again announced in April, 2019 evaporated. If you have kids, and there was a Chuck E. Cheese location nearby, it is likely that you've been there, hosting a birthday party, or picking up/dropping off for one. Most parents I know sigh when talking about Chuck E Cheese, but don't fret, this is Chapter 11, which means the company will be attempting to re-organize, clean up its balance sheet, and reopen. That may be a tall order in this environment.
Meanwhile, as a whole, publicly traded restaurant names are doing better than I would have expected year-to-date. A basket of 38 that I follow are down an average of about 13%. During that same time frame, the S&P 500 is down about 4%, while the Russell 2000 Index and Russell Microcap Index are down 15% and 12%, respectively.
Honestly, it is a bit shocking that the restaurant basket is outperforming the R2000, and is not performing worse, but hope springs eternal in this market, and investors in the sector are more hopeful than I would have imagined, or perhaps than they should be at this point.
When you dig down further into restaurant stock performance, you'll find that just five names, Wingstop (WING) (+61%), Papa John's (PZZA) (+33%), Domino's Pizza (DPZ) (+28%), Chipotle (CMG) (+25%), and Noodles & Co (NDLS) (+5%), are in positive territory year-to-date. The only name here that surprises me is NDLS, which has had its share of performance issues over the years. Last week the company announced sequential improvements in same store sales over the prior week. As of June 16th, 20% of the company's dining rooms had been reopened.
The "Big Five", as I refer to them, McDonald's (MCD) (-6%), Yum Brands (YUM) (-14%), Darden (DRI) (-31%), Chipotle (+25%), and Domino's (+28%), are up an average of about 13%.
The five worst performers year-to-date are Red Robin (RRGB) (-65%), Dave and Buster's (PLAY) (-62%), Ruth's Hospitality (RUTH) (-53%), Bloomin' Brands (BLMN) (-53%), and Dine Brands Global (DIN) (-50%). Markets have been less kind to the sit-down names, which do not lend themselves to takeout as much as many others, and which is not surprising.
The problem from here is that Covid-19 is an ongoing issue, and cases are rising in some parts of the country. If deaths follow suit, and restaurants are unable to follow the current path of reopening, the industry will suffer further damage. I don't know if that is where we are headed or not, but there's only so much capital that can be raised through debt or equity sales, there's only so much a revolving credit line can be tapped, and there's only so long that you can suspend dividend payments before investors abandon ship.
One thing to keep in mind, and I know I've said this often, is that company's can file chapter 11, reorganize, emerge and be successful. However, equity holders in that case usually walk away with nothing.
