California’s outlook less than golden for many chains

While Florida may be taking baby steps on its road to recovery, California is still looking for the energy to stand.


Although the state was among the earliest to be tripped up by the economic downturn, it is bucking the prevailing wisdom that the first into a recession is the first out. In fact, pointed out Hudson Riehle, senior vice president of research and knowledge for the National Restaurant Association, California’s inertia reflects one of the lessons of the Great Recession: “Normal recovery rules don’t apply.”


Southern California was one of the first regions to see its housing bubble pop, and home prices fell faster and steeper than elsewhere in the country. Over the past two years, California has led the nation in home foreclosure rates and unemployment levels, and state and local budget cuts have only added to the weak economic climate.


Though there are signs of healing, California remains a particular challenge for restaurant operators, primarily because the unemployment rate of 12.4 percent remains stubbornly high.


“There are definitely regional differences out there,” said John Chidsey, chairman and chief executive of Burger King Holdings Inc. in reporting that chain’s most recent quarterly results. “The West Coast — California in particular — continues to be a very challenging environment. You can kind of look at where unemployment continues to be very high, and that tracks very closely.”


Emeryville, Calif.-based Jamba Juice in August downgraded sales projections for the year to between negative 3 percent and flat, in part because of difficult economic conditions in California, where 70 percent of the smoothie chain’s stores are located. In the spring, Jamba officials had predicted full-year results would be positive.


Still, some chains are seeing modest improvements in California, though in part because of easier comparisons.


In reporting an 8.6-percent dip in second-quarter same-store sales for San Diego-based quick-service chain Jack in the Box, chief executive and president Linda Lang said, “California experienced continued stabilization and was our best-performing market for the second quarter on both a one- and two-year basis.”


Still, though both transactions and the average check improved from the first quarter, she said, “We don’t expect significant improvement in underlying fundamentals until high unemployment rates in our major markets for our key customer demographic begin to improve.”


Calabasas Hills, Calif.-based The Cheesecake Factory Inc. also said California was its softest market throughout the recession and remains “less stabilized,” compared with the rest of the nation.


However, David Overton, The Cheesecake Factory’s chief executive, noted that California sales were only down 1 percent in the second quarter, compared with down 3 percent to 4 percent throughout 2009 over the previous year.


“So if 1 percent is as bad as it gets,” he said, “it’s not so bad.”


Contact Lisa Jennings at [email protected] [2].