I happened to drive past a Wendy's (WEN) location yesterday, which is knee-deep in a fresh beef shortage, and had to see it with my own eyes. Would they or would they not be serving burgers? At this New Jersey location there was a handwritten sign placed prominently near the drive-through menu board, which read that single burgers were available, but no doubles or triples.
The shortage is real, at least for WEN in their use of "fresh, never frozen" beef, and the company is starting to inquire whether its suppliers are engaging in price gouging. In fact, 11 state attorney generals have asked the Department of Justice to look into whether there's some meat industry pricing shenanigans happening. Welcome to the wonderful world of fallout from a pandemic induced locked down economy.
Fresh beef may be scarce, but new restaurant capital raises are not in this environment. Brinker International (EAT) , (parent of Chili's in case you don't recognize the name) priced their 7 million share secondary offering at $18.25/share. It also gives underwriters a 30-day option to buy up to 1.05 million additional shares. There are a couple of interesting issues here. First, EAT closed Thursday at $20.26, 10% above the offering price. Second, with about 37 million shares outstanding pre-offer, there's a lot of dilution happening here, up to nearly 22% if EAT places the entire 8.05 million shares.
That shows just how dire the current environment is for restaurants. Raising capital through equity may also have been the company's only option, given its current debt level of $1.43 billion (long-term, and that excludes operating lease liabilities). Upcoming debt maturities, besides its revolving credit facility, are still a few years away for EAT; its $300 million in 3.875% notes (issued in 2013) mature in May, 2023 while its $350 million in 5% notes (issued in 2017) mature in October, 2024. Most of the remaining debt is a revolver which matures in September, 2021.
This makes me wonder a couple of things. First, which chains may not survive this crisis without having to file for bankruptcy, and whether the crisis will alter the future of company capital structures.
Finally, Bloomin' Brands (BLMN) is out with first quarter earnings this morning, earnings per share of 14 cents missed the 20-cent consensus estimate. Revenue of $1.008 billion was ahead of the $986 million consensus. What may have the stock up, however, is a statement from the CEO stating that early results from the reopening of 355 locations earlier this week, have been "promising". I wait, with baited breath, for more specifics.
Interestingly (to me, but probably no one else), I had a dream last night that I was back in a restaurant, sitting down, having dinner, with no pandemic-related fears. Ah, the good old days.