Wednesday, April 23, 2008

HUNGER PANGS : Restaurants Feel Sting Of Surging Costs, Debt

Add the latest news from Starbucks to the mix and is getting harder almost on a daily basis even for permabulls to spin things in their favour..... Needless to say that this will put massive pressure on the commercial real estate market.....

Nimmt man noch die gestrige Warnung von Starbucks hinzu wird es selbst für den versiertesten Daueroptimisten immer schwieriger die Dinge in einem positiven Licht erscheinen zu lassen....Da lag ich mit meinem Kommentar aus den Anfängen des Blogs Mitte 2006 wohl doch nicht ganz verkehrt...starbucks / sbux als barometer . Überflüssig zu erwähnen das diese Entwicklung heftigen Druck auf den gewerblichen Immobiliensektor ausüben wird.....

Starbucks
Citing "the sharp weakness in the U.S. consumer environment," ... Starbucks said U.S. comparable-store sales fell by the mid-single digits on a percentage basis amid lower traffic. ...

Thanks to Matt Davies

HUNGER PANGS: Restaurants Feel Sting Of Surging Costs, Debt WSJ - The $558 billion restaurant industry is hitting rough times, squeezed by many of the same woes affecting other sectors of the economy: tightfisted consumers, scarce credit and surging commodity prices. Adding to the pressure is a big jump in the minimum wage starting this summer, which will boost wages by 12% in some states.

That's sent the industry into its worst slump in decades. Many chains have scaled back expansion plans or cut costs by skimping on things like extra sauce and free sour cream. Some are shuttering sites and laying off workers. Private-equity firms, which plunged into the business earlier this decade using gobs of borrowed money, are now especially vulnerable as those debts come due.

This week's earnings results, despite some glimmers of good news, paint a sobering picture. McDonald's Corp., the world's largest restaurant chain, saw U.S. sales at restaurants open at least 13 months fall 0.8% in March, the first decline in monthly same-store sales in five years


The slowdown has broad implications for the economy. The industry employs 13.1 million people, making it the nation's third-largest employer, behind the U.S. government and the health-care industry, according to the National Restaurant Association, a trade group. Many of those jobs are held by the poor and immigrants who have few other options for work.

> Keep this in mind when the BLS will still be reporting job gains in the birth death model .... Heren is more on the BLS Black Box via Mish

> Behaltet das im Hinterkopf wenn in den nächsten Monaten das Bureau of Labor Statistics trotzdem noch immer massive Jobzuwächse in diesem Segment berichten wird.... Kann jedem empfehlen BLS Black Box von Mish zu lesen. Mit dieser Methodik hätten auch wir in Deutschland gute Chancen auf eine Vollbeschäftigung.....

Moody's Investors Service has downgraded seven prominent national and regional chains, including Landry's Restaurants and the parent of Pizzeria Uno, to its lowest liquidity rating -- the most restaurants to be given this rating at once since it was created in 2002.


Restaurants overexpanded in recent years, too. There were 524,286 eating and drinking places in the U.S. in 2006 -- a 45% increase from 1990, according to the National Restaurant Association. The U.S. population rose 20% during that period, according to census figures.

In part because of the glut, overall same-store sales at about 70 restaurant chains were flat or down in the fourth quarter, says Wachovia Capital Markets. Dips are rare in a business that has seen growth in all but two of the past 26 years, according to Wachovia.

> Now to the private equity part with all their "smart" money.........

> Nun zum Teil der sich mit den "smarten" Private Equity Investoren befasst....

At Vicorp -- which owns 400-plus Village Inn and Bakers Square restaurants in cities like Chicago, Denver and Phoenix -- chief executive Ken Keymer is trying to adapt and wring out costs one ounce at a time

Same-store sales at both Village Inn and Bakers Square declined, and a slight profit in 2005 turned to growing losses the next two years. Through the first nine months of 2007, Vicorp had a loss of $20.9 million on sales of $336 million. Vicorp's debt-to-equity level ballooned from four times to 10 times on its $127 million in public debt.

Like many restaurant chains, Vicorp was a target of private-equity investors earlier this decade, which loaded it up with debt the company later couldn't cover. Flush with cash in the past few years, private-equity funds saw restaurants as relatively cheap investments that could potentially be turned around quickly by a management change or new menu concept.

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2 Comments:

Blogger Harleydog said...

FYI...Darden and Brinker tickers DRI and EAT look ripe.
HD

12:33 PM  
Blogger jmf said...

Moin,

here is more via Minyanville


PF Chang's


President Robert Vivian:
- "Many traditional household expenses are as high as we have ever seen them. We continue to believe we have not seen the bottom of this cycle, and that it will be with us into next year."
- "Even though our commodity contracts provide stabilization for the balance of this year, we do have concerns looking into 2009."

The company raised total menu prices 2.5% last quarter.
On the bright side the company noted sequential improvement in comps spread across the 36 states where comp stores are operating. BUT, their traffic remains negative, and, as Vivian said, "as long as this continues to be the case, we'll be swimming upstream."
In the Q&A, Vivian reiterated how important traffic is to the company, saying "the biggest factor effecting our ability to deliver... results is how many guests venture through our doors each day."
Moreover, Exec. VP Russell G. Owens noted that the company has a high percentage of restaurants in subprime-effected areas. In those areas is the company seeing a bottoming of the impact? No. According to Owens, "As a general rule it's gotten worse in the first quarter than the fourth quarter, and we have
seen during the quarter [it] continue to worsen in those markets."
PFCB is projecting 200-250 basis points of margin improvement. The question was asked, "How?" Well, largely through labor costs, and maybe 50-80 basis points in cost of sales. This is an ongoing theme we're hearing: margin improvement or margin contraction improvement for some companies, through labor cost cutting. That has a very important and direct impact on consumer spending and the economy.

10:05 PM  

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