Restaurants have suffered enormously since coronavirus began spreading around the world three months ago — and as always, Calcbench wanted a better sense of how much damage restaurant firms have been disclosing.

So we scoured the filings of 110 firms that belong to SIC Group 5812, otherwise known as the retail food sector. Our goal: finding the nuggets of disclosure that tell the true story of Covid-19’s harm to the restaurant business.

Well, we found those nuggets. Today we begin Calcbench Restaurant Week, a three-part series of posts looking at what restaurant firms have been reporting and how Calcbench subscribers can put those insights to good use.

First up: restaurant closures and their effect on sales.

At a high level, Q1 2020 sales were clearly down. We found 30 firms that already reported first-quarter revenue, and collectively that amount fell from $25.4 billion in Q4 2019 to $22.8 billion in the first quarter of this year: a drop of 10.2 percent.

Among those 30 firms, however, the decline in revenue varied widely. For example, Jack in the Box ($JACK) revenue fell 29.7 percent, Papa John’s International ($PZZA) fell 1.8 percent, and Wingstop ($WING) saw sales actually rise 4.2 percent.

Moreover, the exact timing of Covid-19’s arrival matters, too. The virus hit the United States and Europe only in March. That means many firms were having a perfectly fine Q1 through January and February, only to see sales plunge in March. The pattern is so lopsided that a single number for all three months can be deeply misleading.

How misleading? Consider the case of Bloomin’ Brands ($BLMN), corporate parent of Bonefish Grill, Outback Steakhouse, and a few other chains.

In its earnings release filed on May 8, Bloomin had the decency to break out same-store sales for March from the rest of the quarter. See Figure 1, below.



As you can see, those sales were trending upwards for the first two months of Q1, then plummeted in March. That plummet was large enough to pull down same-store sales for the entire quarter. (Bloomin’s total revenue for Q1 was down only 1.35 percent from Q4 2019.)

Likewise, Arcos Dorados Holdings ($ARCO), which operates McDonalds franchise stores across Latin America, had this to say about same-store sales in an earnings release filed on May 13:

Systemwide comparable sales declined 4.5% versus the prior-year quarter, with a 10.9% increase for the two months ended February 29 and a 33.5% decrease in March.

Not every firm discloses this level of detail. If you want to look for it, a good place to start is our Interactive Disclosures page, where you can use the text-search field (right side of the screen) to search for “same-store sales,” “comparable sales,” or similar terms.

Points to Consider

This pressure on same-store sales has some interesting implications. For example, we could see a reverse effect in Q2 — where sales are awful in April, but better in May and June as more restaurant locations reopen for business. So where Q1 same-store sales looked artificially good, Q2 numbers would look artificially bad.

How likely is that, really? Nobody knows yet. Many states have barely begun allowing restaurants to resume normal operations, and even when they do, lots of people are staying home. But the whole issue underlines the importance of examining same-store sales in as much detail as possible, including month-to-month breakdowns.

Analysts will also want to pay close attention to the actual number of stores. Many restaurant firms will close at least some locations forever. Presumably those will be the worst-performing stores — so if you examine same-store sales alone, without considering how the total number of stores has changed, that could give you a false sense of performance.

Again, you’ll need to scour the footnotes to find that level of detail. Typically you can find it in the Business Description or Management Discussion & Analysis sections. Bloomin, for example, reported one fewer location in Q1 2020 (1,472 locations) than it had in Q4 2019 (1,473). Chipotle Mexican Grille ($CMG), meanwhile, increased its locations from 2,619 at the end of Q4 2019 to 2,635 at the end of Q1 2020.

That concludes this first course for Calcbench Restaurant Week. More to come soon!


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