An Analysis of Public Restaurant Companies in the Wake of COVID-19 Part 4: Second Quarter Revenues

In our last update, we reviewed the effects of COVID-19 on the broader restaurant industry through the lens of public companies. The analysis reviewed first quarter 2020 operating results posted by companies operating or franchising more than 160,000 locations across the country, roughly a quarter of locations within the United States. Most of the results covered operations through March 31, 2020. Since COVID-19 was not declared a pandemic until March 11, and executive stay-at-home orders were not handed down until several weeks later in many jurisdictions, these results represented a blend of pre- and post-COVID operations. Second quarter data, in contrast, represents the first full quarter of pandemic-related effects on the broader restaurant industry.


Monthly retail and food service sales throughout the United States are indicated by the Federal Reserve to be $207.16 billion per month as of July 2020. Throughout 2020, retail sales have been averaging $194.42 billion per month, which is below 2019's average of $202.63 billion per month. Prior to the onset of the Great Recession, retail sales had previously peaked at $179.70 billion per month in November 2007. Since that peak, sales declined to a recessionary low of $155.18 billion per month in March 2009, a decline of 15.80%. Prior to the onset of the COVID-19 disruption, sales had recovered, surpassing their previous highs to reach $204.67 billion per month in August 2019, an increase of 31.89% from their recession lows. Retail sales have recovered and are currently 1.22% above their pre-COVID peak.

In the first quarter, the average restaurant company saw revenues decline by about 12% between the fourth quarter of 2019 (Q419) and the first quarter of 2020 (Q120), with limited-service restaurant sales down 14% on average across the sector over that period and full-service restaurants down 10% on average. In the second quarter, results have deteriorated dramatically, with the average operation seeing declines in revenues of 23% from their prior-quarter results. For comparison’s sake, the average company within the dataset saw a revenue increase of 4.29% from the first quarter to the second quarter of 2019.

Full-service operations have exhibited average revenue declines of 43%, while fast casual companies have fared slightly better, posting declines of 20%. The company posting the largest drop was Ruth’s Hospitality Group, owners of the upscale Ruth’s Chris Steakhouse brand. Revenues at the firm were down 74%, from $108.5 million in the first quarter to just over $28 million in the second. Most other full-service chains showed similarly-significant declines. The lone increase in the sector came from BBQ Holdings, which posted increased revenues as the result of the company’s recent acquisition of the Granite City chain of restaurants around the beginning of the year. The continued turmoil has pushed several chains within the sub-sector into bankruptcy, including FoodFirst Global Restaurants (parent of Brio Italian Mediterranean and Bravo Fresh Italian restaurant chain), Souplantation, Chuck E. Cheese, and Le Pain Quotidien.

Limited-service restaurants have shown less significant declines in revenues, with operations generally being buttressed by delivery and drive-thru services. Nevertheless, the pandemic has forced a retrenchment of many brands, with Dunkin Donuts recently announcing the closure of 800 locations throughout the U.S., most of which are located in Speedway gas stations which lack drive-thru lanes. In a similar vein, McDonald’s recently announced the closure of 200 locations, most of which are located within Wal-Mart centers that lack a drive-thru.

In the first quarter of 2020, pizza restaurants, which already relied heavily on delivery, fared the best in the sector. That trend continued in the second quarter, with Papa John’s Pizza (PZZA), for example, showing a gain in revenues of 12% between Q120 and Q220. On July 27, the company announced its intention to hire 10,000 new employees in order to meet growing demand. The other pizza delivery company surveyed, Domino’s Pizza, exhibited an increase of 5% over the period, further reflecting a shift towards delivery services. Domino’s recently announced that the company is looking to fill more than 20,000 positions across their operations.

After a pause in April, the CPI that tracks purchases of food-away-from-home (i.e. restaurant purchases) resumed its upward march in May, June, and July of 2020, increasing 0.5% each month. For the prior 12 months, the index had increased at a more modest 0.2% per month, indicating increasing inflation pressures within the sector. Despite the recent increase, the USDA is still forecasting food-away-from-home prices to increase between 1.5% and 2.5% in 2020, which is unchanged from the beginning of the pandemic. Food-at-home prices are forecast by the USDA to increase at a greater rate of 2.5% to 3.5% in 2020. Traditionally, food-away-from-home has increased at a rate greater than food-at-home; however, COVID has reversed that trend.

As legal proceedings around the nation have begun to resume back in courtrooms, it should be noted pending litigation with various restaurants and insurers are expected to take place. For instance In-N-Out Burger, a privately held fast food restaurant chain, is reportedly suing Zurich American Insurance Company with a breach of contract alleging the insurer refused to cover business losses during the COVID pandemic, with the suit seeking damages within its policy cap of $250 million. In-N-Out Burger is one of several restaurant seeking damages in the restaurant industry, the trend has become so common that restauranteurs have banded together in alliance with other small business owners dubbed the Business Interruption Group (BIG) to pursue legal recourse with insurers denying coverage.


To close out our last three analyses, we examined the OpenTable index of reservation data, which tracks industry trends through its reservation network of nearly 60,000 restaurants throughout the world. It is considered something of a leading indicator for restaurant traffic volumes. Since the middle of March, when the WHO officially declared a pandemic and most countries shut down public gatherings, the index, which tracks year-over-year changes in reservation activity, has remained dismal.

Germany, which has generally been praised in its handling of the pandemic, has shown a potential way forward. Restaurant bookings in the country have rebounded significantly, posting several positive numbers throughout June, July, and August. In the United States, activity remain tepid, but is nevertheless up from April/early-May lows. Most states are currently exhibiting declines in bookings of 40% on average. Through mid-August, there have been almost 170,000 deaths in the U.S. attributable to COVID and some localities have re-implemented stay-at-home orders. Since late July, new cases have been steadily declining in the United States on a rolling 7-day-average basis, possibly providing future respite should the trend continue in a positive direction.

We here at Kearns & Langeveld will continue to track these data points and trends. Second quarter costs/expenses will be analyzed next week, followed by profits the week after, so stay tuned. Stay healthy and stay safe.

Wishing you all the best,

Michael Kearns, MAI, ASA & Colin Langeveld

Kearns & Langeveld LLC

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