Worst Restaurant Tailspin since 2009/2010 Crushes Lower End

From Wolf Street, by Wolf Richter

“Rising household debt load” likely to “suppress consumption, including eating out.”

So another chain restaurant is “preparing” to bite the dust. Ignite Restaurant Group, which operates the Joe’s Crab Shack chain with 113 locations and the Brick House Tavern chain with 25 locations, and used to operate the Romano’s Macaroni Grill chain with 150 locations until it sold it in 2015, is preparing to file for bankruptcy, “people familiar with the matter” told Bloomberg.

In the quarter ended September 26, 2016, the last quarter for which the company bothered to release an earnings report, same-store sales fell 6.8%; total revenues plunged 10% to $120 million.

A liquidity problem turns into a solvency problem: It had $729,000 of cash and about $26 million of “available borrowing capacity under its current credit facility.” Not exactly a lot, considering that the company lost $15.2 million in Q3, up from a loss of $4 million in Q3 2015.

It had $179 million in liabilities, including $113 million in long-term debt. It shares, which had traded as high as $19 in 2013, have consistently trended lower since, became a penny stock last year, and are now just about worthless (2 cents).

For chain restaurants, it’s really tough out there.

Industry-wide, same-store foot traffic fell 3.3% in April year-over-year. For the past three months, traffic is down 3.9%. Same-store sales in April fell 1.0% are down 1.8% for the past three months, according to TDn2K’s Restaurant Industry Snapshot.

Food sales and alcohol sales both were down. As traffic dropped, the average check increased 2.3%, less than the rate of inflation.

Q1 had been the fifth quarter in a row of year-over-year sales declines. Now everyone is hoping Q2 will be different. But April’s numbers aren’t auspicious. And no one wants six quarters in a row of this. “The last time the industry experienced a similar period was in 2009 and the first half of 2010,” the March report had pointed out. April has moved the needle further in that direction.

Read more at Wolf Street



Categories: Economy

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