Casual Dining Chains Show Improvement, but Rating Agencies Remain Wary

Of the business sectors most impacted by the pandemic, casual dining remains one of the hardest hit. And recent quarterly earnings indicate it's still a long road back to normal. While its better positioned fast food brethren—many of which entered the pandemic already equipped for the new normal with drive-thrus and delivery—indicated that operations were getting back to normal, with some such as Popeyes even reporting positive numbers, comparable sales even as recently as July were still down by about a third. The pandemic has already forced several restaurant brands reliant on in-store dining to file for bankruptcy, including Chuck E. Cheese parent CEC Entertainment, California Pizza Kitchen, and Brio Tuscan Grille and Bravo Cucina Italiana parent FoodFirst Holdings. A recent report published by rating agency S&P said that while the prospects for casual dining have broadly improved, it implied a number of chains have credit scores of CCC+ or below, indicating they remain distressed. Those include Dave & Buster’s Entertainment—which, like CEC Entertainment, relies heavily on both in-store dining and experiences—as well as Bloomin’ Brands (Outback Steakhouse, Carrabba's); Denny’s; The Cheesecake Factory; Dine Brands Global (Applebee's, IHOP); and BJ’s Restaurants. Meanwhile, rating agency Fitch continues to have casual diner Steak 'n Shake among its top loans of concern, while Moody’s and S&P have also marked restaurant brands such as Red Lobster and P.F. Chang’s parent Wok Holdings as in danger of default. Many chains will not go down without a fight. Denny’s, for one, recently launched a new ad campaign touting all the ways it is making its restaurants safe and its food available for online ordering. The industry can take some solace from the fact a troubled chain is making a substantial investment in marketing during a crucial time in its history. Recent earnings reports reveal both the challenges faced by casual dining concepts, and the recent improvement in their comparable sales. Brinker International Chili’s parent Brinker International said comparable sales for its flagship chain fell about 32% during the fourth quarter ended June 24, while same-store sales declined about 67% at sister brand Maggiano’s. The restaurant group, however, said that for the period from June 24 to July 29, comparable sales significantly improved at both of the banners, down only around 11% at Chili’s and nearly 45% at Maggiano’s. Overall, comparable sales for the fourth quarter at Brinker decreased 37%. Revenue for the fourth quarter was down about 32.5% to $563 million from $834 million for the same period a year prior, while the company experienced a net loss of $49 million versus net income of $47 million for the year-prior period. Brinker projected that for the first quarter, its comparable sales would be down in the low to mid-teens. Dine Brands Dine Brands, the parent of diner IHOP and Applebee’s, said that comparable sales for the second quarter ended June 28 declined about 59% and 49% for the two chains respectively. Similar to Brinker, same-store sales improved for the two chains for the period from June 28 until July 26, with a decrease of 38% at IHOP and a decline of 18% at Applebee’s. Second quarter revenue at the parent was down nearly 52% to about $110 million from about $228 million year-over-year, while the company reported a net loss of almost $135 million versus net income of roughly $21 million for the year-prior period. The Cheesecake Factory For the second quarter ended June 30, comparable sales at The Cheesecake Factory decreased nearly 57%, but improved since the end of the quarter through July 26 to a decline of about 32%. Revenue at the casual dining chain fell about 51% to almost $296 million from nearly $603 million for the year prior. Profit also suffered, with the company reporting a net loss of around $57 million versus net income of close to $36 million. Darden Darden, the largest of the casual dining operators, said that during its fourth quarter ended back on May 31, comparable sales fell about 39% at Olive Garden and 45% at LongHorn Steakhouse, by far its two largest brands. Overall, same-store sales fell 48% at Darden during the period. Like the other chains, same-store sales are improving, down about 33% across the business from May 31 through June 21. At Olive Garden, the number improved to a decline of 31%, while comparable sales were down 24% at LongHorn. Revenue, likewise, fell within a similar range, decreasing 43% year-over-year to $1.27 billion from about $2.23 billion for the year-prior period. Bloomin' Brands For the second quarter ended June 28, Bloomin’ Brands reported comparable sales at its flagship chain Outback Steakhouse had fallen nearly 33%; Carrabba’s Italian Grill posted a decline of almost 37%; and Bonefish Grill was down close to 57%. Overall, Bloomin’ said same-store sales across its business decreased about 39%. Each of the chains are showing recent improvement, however, with Outback down around 13%, Carrabba's declining about 17%, and Bonefish falling almost 35% for the week ended July 19. Revenue at Bloomin’ decreased about 43% to nearly $579 million from about $1.02 billion year-over-year, while the dining group experienced a net loss of $92 million compared to net income of $29 million for the same period a year prior.