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.

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