By Ciara Linnane, MarketWatch
Stifel analysts lowered earnings estimates for restaurant companies on Wednesday on expectations that the coronavirus that causes the illness COVID-19 will create labor shortages and impact opening hours as it continues to spread across the U.S.
There are now 121,564 cases of the illness worldwide and at least 4,373 deaths, according to the latest data from the Johns Hopkins Whiting School of Engineering’s Centers for Systems Science and Engineering. There are 1,050 cases in the U.S., where 29 patients have died.
“Within the hotspot areas, we have heard staffing has become an issue as employees want to avoid risking exposure, causing restaurants to alter their hours of operation,” Stifel analysts led by Chris O’Cull wrote in a note to clients. “Based on our channel checks, we believe restaurants outside of these areas have not seen a meaningful COVID-19 impact.”
O’Cull examined the exposure of individual companies to the cities and areas that have the biggest clusters of infections of the virus, led by Seattle and Westchester County in New York.
Not surprisingly, Seattle-based Starbucks Corp. /zigman2/quotes/207508890/composite SBUX +0.11% is the most exposed to the Seattle market among a list of 11 limited-service restaurant chains, with 5% of its U.S. outlets based there, the analysts wrote.
There were 114 confirmed cases of the virus in Seattle, as of the time the Stifel note was published. The latest tally is 267 cases, according to the Washington State Health Department.
Jack in the Box Inc. /zigman2/quotes/206571438/composite JACK +1.40% is the second most exposed to the Seattle outbreak, with 4% of its U.S. outlets there. Shake Shack Inc. /zigman2/quotes/209397077/composite SHAK -1.46% , Wingstop Inc. /zigman2/quotes/206814832/composite WING +0.66% , Chipotle Mexican Grill Inc. /zigman2/quotes/200781108/composite CMG +1.29% , Papa John’s International Inc. /zigman2/quotes/207343722/composite PZZA +3.52% , Domino’s Pizza Inc. /zigman2/quotes/201587798/composite DPZ +0.23% , McDonald’s Corp. /zigman2/quotes/203508018/composite MCD +3.14% , Burger King parent Restaurant Brands International Inc. /zigman2/quotes/202094900/composite QSR +2.55% , Yum Brands Inc. /zigman2/quotes/209029767/composite YUM +0.86% and Wendy’s Co. /zigman2/quotes/204070192/composite WEN +1.35% have 1% of their U.S. outlets in the Pacific Northwest metropolis, according to Stifel.
As the table above shows, only Shake Shack has exposure to Westchester County and is also most exposed to New York City, which is home to 11% of its U.S. outlets. There are 173 cases in New York state, with 108 in Westchester Country and 36 in New York City, according to the state’s health department.
Among full-service chains, BJ’s Restaurants Inc. /zigman2/quotes/203668982/composite BJ +2.98% is most exposed to Seattle, which is home to 2% of its U.S. outlets. Olive Garden parent Darden Restaurants Inc. /zigman2/quotes/200092615/composite DRI +0.04% and Dave & Buster’s Entertainment Inc. /zigman2/quotes/203157296/composite PLAY -1.69% have 1% of their domestic outlets in Seattle, while Chuy’s Holdings Inc. /zigman2/quotes/209876692/composite CHUY -0.92% , Applebee’s parent Brinker International Inc. /zigman2/quotes/203470869/composite EAT -1.74% and Texas Roadhouse Inc. /zigman2/quotes/207361729/composite TXRH +1.70% have no outlets in Seattle.
“We assume same-restaurant sales for the casual-dining segment will turn sharply negative in coming weeks and developed our company projections taking into consideration each concept’s recent relative performance (i.e. gap-to-Knapp),” O’Cull wrote. “Our segment same-restaurant sales projection for [the second quarter calls for a decline of 7%], which includes several weeks with SRS down 10-25% before returning flattish in early June.”
Stifel lowered its same-restaurant-sales and per-share-earnings forecasts for Shake Shack and Jack in the Box. The analysts rate Shake Shack hold, while Jack in the Box is a buy.
Stifel will continue to monitor industry trends and adjust estimates as needed, it said, “but we believe this outlook is sufficiently dire for the near term.”
Starbucks shares were down 8.7% on Wednesday, while BJ’s was down 7.8%. The S&P 500 /zigman2/quotes/210599714/realtime SPX +1.34% fell 4.9%, and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +2.13% closed lower by nearly 5.9%.
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