Restaurants Cautious As Flu Scare Hits Sales, Outlooks
May 01 2009 - 1:25PM
Dow Jones News
Restaurants are taking precautions - both in their stores and
financial outlooks - as they gauge the impact of the A/H1N1 flu
outbreak.
With consumers spooked about gathering in public places,
restaurant chains are experiencing lost traffic and sales. Others
are being forced to close locations in Mexico City, losing out on
valuable days for business, particularly for full-service chains
that do most of their business in their dining rooms.
Chuck E. Cheese operator CEC Entertainment Inc. (CEC) said
Friday same-store sales have dropped sharply since the swine-flu
outbreak became news, as families become cautious about bringing
their kids to play at the restaurant's arcade and other games. CEC
says it is sanitizing restrooms, rides and tables more often now to
keep guests and employees safe.
After reporting a strong fiscal first quarter, CEC declined to
issue a sales outlook as the impact from lost sales couldn't yet be
measured, though it hopes the fear lifts in the coming weeks.
"We are hopeful that any negative impact from the swine flu
could moderate by the end of May," CEC Chief Executive Michael
Magusiak told investors on an earnings call.
Investors appeared to shake off the fear, with CEC shares rising
$3.25, or 10.7%, in recent trading to $33.71.
Earlier in the week, Burger King Holdings Inc. (BKC) cut its
fiscal-year outlook due in part to the swine flu's impact in
Mexico, where the company is looking at double-digit declines in
same-store sales in the near term.
Brinker International Inc. (EAT) has 24 franchised restaurants
that remain closed in Mexico City, though it is offering orders for
pick-up at its Chili's Grill & Bar, a spokeswoman said.
Starbucks Corp. (SBUX), with 261 locations in Mexico, only has
orders to go in its Mexico City coffeehouses, while seven stores at
universities are outright closed.
As fear around the outbreak spreads, analysts say that
restaurants in the southwest border states could be hardest hit. A
Morgan Keegan & Co. analyst cited BJ's Restaurants Inc. (BJRI),
P.F. Chang's China Bistro Inc. (PFCB) and Cheesecake Factory Inc.
(CAKE) as having among the largest exposure to the border
states.
Another byproduct of the illness could come in commodities.
Though the virus can't be contracted by eating pork, analysts
expect demand for pig meat to plummet in the coming weeks in favor
of beef and chicken.
If more chickens are slaughtered for their breast meat, that
could flood the market with secondary chicken parts, potentially
benefiting chains like Buffalo Wild Wings Inc. (BWLD), a big buyer
of wings, and Chipotle Mexican Grill Inc. (CMG), which uses legs
and thighs, according to Oppenheimer & Co. restaurant analyst
Matthew DiFrisco.
While second-quarter sales expectations may need to be tweaked,
analysts see any impact from this flu outbreak as short-lived, much
like in prior flu scares. Yum Brands Inc.'s (YUM) KFC chain saw
sales drop significantly in Thailand and other Asian countries
following the bird-flu outbreak in 2006, but sales returned to
normal levels within six weeks.
-By Paul Ziobro, Dow Jones Newswires; 201-938-2046;
paul.ziobro@dowjones.com