NEW YORK As third-quarter earnings season begins this week with some of the largest restaurant companies reporting results, including McDonald’s, Brinker International and Chipotle, analysts are expecting slow sales and profits that are driven by cost cutting, much like the earlier quarters this year.
Despite comparisons to the third quarter last year, when sales dropped severely in the midst of the recession, restaurants have yet to see an uptick in customer visits or spending and are therefore still relying on depressed commodity and operating costs to drive earnings.
“Our October-to-date channel checks across the entire restaurant industry suggest another geographically broad-based negative same-store-sales deceleration across all categories despite generally easier year-to-year comparisons,” said securities analyst Paul Westra at Cowen & Co. in New York.
He estimated same-store sales declines of about 100 basis points, or 1 percent, compared with the third quarter of last year.
Investors and analysts are carefully watching for any signs of sales growth that will help drive an industry recovery. The restaurant sector is typically the first to feel the effects of an economic downswing and also the first to feel the effects of an upswing. So far, data has not pointed toward a top-line recovery.
“We do not expect many positive sales updates,” said Joe Buckley, restaurant securities analyst at Bank of America-Merrill Lynch in New York. “Quick-service restaurant sales trends are deteriorating. Casual-dining sales did not show sequential improvement in September and even if sales are better in October, managements are unlikely to let two to three weeks of data dominate their sales commentary.”
Both Westra and Buckley, however, reiterated that earnings — aided by reduced expenses from leaner operations, cheaper commodities and staffing cuts — will be on target, if not improved from a year ago.
On tap this week to report latest results include:
- Brinker International Inc.
- Sonic Corp.
- P.F. Chang’s China Bistro Inc.
- McDonald’s Corp.
- Chipotle Mexican Grill Inc.
- The Cheesecake Factory Inc.