NEW YORK Hopes for a post-election market bump were dashed Wednesday as all major market indexes and the NRN Stock Index posted large declines in reaction to persistent concerns about the nation’s economic plight. The day proved particularly grim for restaurant companies, with new research suggesting a further fall-off in consumer spending in November.
The sector was again plagued by weak corporate earnings and dire sales forecasts for the remainder of the year. Yet the picture was darkened this time by the release of RBC Capital Markets' Restaurant Spending Snapshot. While many operators have characterized September and October as the worst months yet for consumer spending, the study indicated that the remainder of the year could be even more bruising.
The study found that 49 percent of consumers polled during the last week of October are planning to curtail their spending in restaurants during the next 90 days, a new record for the monthly survey, which usually includes 2,700 respondents. All participants said they planned to pull back spending and focus instead on saving as rising unemployment, falling home values and stock market volatility continue to dominate the headlines.
“While a lot of bad news is already discounted in restaurant stocks, the potential for further sales deceleration will likely continue to weigh on earnings and valuations near-term,” said RBC analyst Larry Miller.
This week, Ruth’s Hospitality Group Inc. said October same-store sales at corporate Ruth’s Chris Steak Houses fell 15 percent from a year ago and Papa John’s International Inc. said domestic same-store sales slipped into negative territory in September and October. They both cautioned that trends would likely continue.
John Ivankoe, an analyst at J.P. Morgan, cut his full-year profit projection on casual-dining giant Darden Restaurants Inc. because he expects the company to post negative blended same-store sales for its three largest chains, Red Lobster, Olive Garden and LongHorn Steakhouse, during the remainder of the company’s fiscal year, which ends in May. Darden’s stock fell 8.4 percent Wednesday to close at $20.96.
The NRN Stock Index fell 4.5 percent to close at 974.3. The market cap-weighted index of all 61 public restaurant companies is down 3.8 percent for the week, and down 16.5 percent for the year. The largest decliners on Wednesday included Papa John’s, Ruby Tuesday and DineEquity.
The general market was hit as well. The Dow fell 5 percent, the S&P 500 dropped 5.3 percent and the Nasdaq composite fell 5.5 percent. Investors reportedly focused on continued job losses, weak corporate earnings and a new study that showed pullback in the construction, manufacturing and service industries.