The Calcbench Restaurant Week comes to a close today with some different cuisine. After two numbers-driven posts about same-store sales and impairment charges in the restaurant sector, today we serve up some analysis of narrative disclosures.

We begin with the risk factors firms included in their Q1 2020 filings. As one might guess, risks related to Covid-19 are right at the top, and several themes keep showing up:

  • Inability to predict when restaurants will be able to reopen, or what customer activity the restaurants might see once they do;
  • Potential closures of restaurants or other facilities after they reopen, if a Covid-19 outbreak strikes the location;
  • Uncertainty about rent concessions that firms are trying to obtain from their landlords;
  • Questions over firms’ ability to secure necessary capital to maintain liquidity; and
  • Potential supply chain disruptions, including volatility in food commodity prices and the ability of key suppliers to continue as a going concern.

As always, the amount and quality of these disclosures varies by firm. For example, Fiesta Restaurant Group ($FRGI) dribbles more than 500 words across one long paragraph — with nary a single number anywhere to be seen in the mix.

Compare that to Jack in the Box ($JACK), whose disclosure runs even longer, but the company breaks up that narrative into multiple, focused paragraphs with more detail. For example, here’s what Jack had to say about debt:

As discussed in this report, we have a significant amount of debt outstanding and have recently drawn down on our Variable Funding Notes, which provided us $107.9 million of unrestricted cash, to provide additional security to our liquidity position and provide financial flexibility given uncertain market and economic conditions as a result of the COVID-19 pandemic. A material increase in our level of debt could have certain material adverse effects on us. If the business interruptions caused by COVID-19 last longer than we expect, we may need to seek other sources of liquidity. The COVID-19 outbreak is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 outbreak lasts.

Jack even disclosed the risk that Covid-19 might magnify other risks already disclosed in the company’s original 10-K. Meta.

And other firms do discuss Covid-19 risks, but not in the Risk Factors disclosure. For example, the McDonalds ($MCD) Risk Factors section tells people to go read the Management Discussion & Analysis. You do find information about Covid-19 risks there, but the discussion is mostly sprinkled across a wide range of other subjects, such as revenue or segment performance. Only toward the bottom of the MD&A do you find a specific discussion of pandemic risks, in two relatively brief paragraphs.

In theory, a Calcbench subscriber could use our Interactive Disclosure page to compare Q1’s disclosure of pandemic risks to prior quarters’ disclosures. Just use the “Compare to Previous Period” tab at the top of the disclosure, and you could see how the firm changed its disclosures from Q4 to Q1.

Except, of course, Covid-19 wasn’t a thing in Q4, so you’re not likely to find anything worth reading yet. Later this year, however, as we see filings for Q2 and beyond, that comparison feature could be mighty useful.


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