Early fourth-quarter sales reports suggest unemployment and anemic consumer spending have continued to hamper sales growth for restaurant chains.
With two investor conferences on the calendar last week, a number of restaurant companies released preliminary sales reports for the final quarter of 2009. Although many reported gains in total revenue from new restaurant openings, declines in same-store sales continued to stain companies’ results.
Analysts had largely hoped to see some same-store sales gains in the last quarter of the year because of easy comparisons to the end of 2008, when consumers were still reeling from the financial crisis and the deepening of the recession, leading to some dramatic sales declines.
That optimism has faded a bit given the still negative nature of year-over-year sales declines seen in many of last week’s preliminary reports.
"The restaurant industry is entering 2010 with no clear signs of sales recovery, in effect relinquishing its historical fundamental role as an early recovery group," said a group of Bank of America Merrill Lynch consumer analysts in a note to clients Jan. 8.
Even fast-food chains – the lone stalwarts of sales growth in much of the past two years – reported drops in same-store sales. CKE Restaurants Inc., for example, reported a 6.5 percent drop in its December same-store sales. Sonic Corp. reported an identical drop in same-store sales for its fiscal first quarter, which ended in November.
Still, there were a few positive signs that sales growth may not be too far off for the industry. Ruby Tuesday Inc. said its guest traffic rose year-over-year in its fiscal second quarter. AFC Enterprises Inc., which operates the Popeyes Louisiana Kitchen chain, reported an improved dip of 1 percent in its fourth quarter compared to a drop of 2.1 percent in last year’s fourth quarter.
Most analysts expect the prevalence of lower menu prices and the focus on value to remain cornerstone for industry operators in 2010, at least until unemployment rates begin to recede and consumers begin to feel more confident in the strength of the economy. An industry uptick most likely won’t come until later in the year, they said.
"We believe a number of indicators point towards the second half of 2010 as a more likely scenario for a restaurant industry same-store sales pick-up, as consumer confidence continues to improve, job growth begins to sprout and national unemployment begins to slowly tail-off," said Morgan Keegan analyst Bob Derrington in a note to investors. "As we’ve said before, hope springs eternal."
Aselection of results reported last week:
Benihana Inc. said total sales climbed nearly 5 percent to $70 million for its fiscal third quarter ended Jan 3. Company-wide same-store sales fell 3.4 percent, reflecting same-store sales declines of 5.9 percent at Benihana teppanyaki and 1.6 percent at Haru. Same-store sales rose 4.4 percent at RA Sushi.
California Pizza Kitchen Inc. pre-reported its total revenue rose about 4 percent in its fiscal fourth quarter to $167.8 million. Full-service same-store sales sank about 5.8 percent. The dip, though, was within the range the company projected when it reported its fiscal third quarter results in November. It was also an improvement from a 7.2 percent same-store sales drop in the year-ago quarter. The gourmet pizza chain also said it now expects to report earnings per share between 15 cents and 17 cents excluding impairment charges when it releases its full results Feb. 18. Excluding the charges, the company said it would likely report a loss of 43 cents to 46 cents per share.
Einstein Noah Restaurant Group Inc. said same-store sales at company-operated bakery-cafe units declined 1.8 percent for the fourth quarter ended Dec. 29, compared with a 3.3-percent drop in the same 2008 quarter. Systemwide same-store sales fell 1.5 percent for the quarter, versus a decrease of 1.0 percent a year ago, the company said. Einstein, which operates, franchises or licenses approximately 685 Einstein Bros. Bagels, Manhattan Bagel and Noah¹s New York Bagels locations said quarterly revenues were down slightly to $103.7 million from $103.9 million a year earlier. Excluding any possible impairment charges, it said, it expects final results to include earnings of between 22 cents and 23 cents per share, versus 36 cents a share in 2008's fourth quarter.
Kona Grill Inc. said same-store sales fell 8.1 percent in the fourth quarter ended in December, versus a 9.4-percent decrease a year earlier. The 24-unit, Scottsdale-based operator of casual-dining restaurants said preliminary results showed quarterly sales of $20.0 million, up 7.7 percent from 2008's fourth quarter. It said it would release final fourth quarter and full-year results Feb. 10.
Other results included: