On the Margin
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Will Harvey hurt restaurant sales?

Blog: Hurricanes can hurt, and help, restaurant sales

This post is part of the On the Margin blog.

Hurricane Harvey, now a tropical storm, made landfall on Friday, the strongest storm to hit the U.S. in 12 years. The storm has brought with it historic rains and unreal flooding and damage could total $100 billion.

Southern Texas is also home to a lot of restaurants, hundreds of which are still closed in the storm’s aftermath.

The result of the storm will likely hurt same-store sales at chains with heavy presences in Texas in the short term.

But those sales will quickly recover in the aftermath once the restaurants open and employees can get to work.

Baird Analyst David Tarantino, in a note on Tuesday, said that Chuy’s Holdings Inc., Zoe’s Kitchen Inc., Jack in the Box, Wingstop Inc., and BJ’s Restaurants Inc. have among the biggest exposure to Texas, based on a percentage of their locations.

For instance, 13 percent of Chuy’s and Zoe’s locations were estimated to be in Harvey’s path, according to the analyst, with a potential 1 percent impact on the chains’ same-store sales in the current quarter. 

Maxim Group Analyst Stephen Anderson, meanwhile, suggested that Brinker International, Sonic Corp. and Fiesta Restaurant Group Inc., could also see a sales impact from the storm.

It’s only natural. Nothing impacts sales quite like weather, because if it’s raining or snowing, people tend to stay indoors. And restaurants can’t sell food if they’re closed. Once a meal is over, a restaurant loses those sales — unlike other retailers that can recover sales later.

But hurricanes can be different than other weather patterns because the natural disasters also lead to demand for restaurants in the aftermath. Emergency personnel, cleanup crew, insurance adjusters and construction workers descent upon an area that gets hit, and those people need to eat. That often leads to a sales boost in the aftermath. 

We saw this in October, 2012, when Hurricane Sandy hit highly populated areas in New Jersey and New York.

According to the MillerPulse index at the time, same-store sales grew 1.3 percent that month — a sequential decline from the 2.4 percent the previous month. Sales rebounded to 2.1 percent in November and 2.4 percent in December. 

While many chains might lose sales when their stores close due to the hurricanes, nearby locations could pick up the slack.

“While we expect restaurants in the path of the storm to experience a fairly meaningful negative impact on sales for at least a week, we also see potential for restaurants in the region to experience a healthy bounceback in same-store sales momentum as displaced residents return to their homes and the region experiences an influx of workers for cleanup and rebuilding activity,” Tarantino wrote.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze

TAGS: Finance
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