Restaurant revenues expected to be affected by rising labor and food costs
Higher labor and food costs, along with a shortage of workers and inflationary pressures, have combined to create a tough environment for restaurant chains that analysts say could undermine the profits of the market. quarter which has just ended.
Shares of Brinker International, parent company of restaurant chains like Chili’s and Maggiano’s Little Italy, fell 11% on Wednesday morning after an announcement of negative preliminary results.
The Dallas-based company said while revenues were as expected at around $ 860 million, profit margins were significantly affected by rising labor and food costs, both of which were exacerbated. by the resurgence of the coronavirus pandemic spurred by the spread of the delta variant.
Domino’s announced last week that it was also addressing industry-wide workforce issues, as the pizza chain’s quarterly U.S. same-store sales growth became negative for the first time in over a decade.
As Domino CEO Ritch Allison said last week, a shortage of workers put pressure on the number of orders restaurants can process, with some locations being forced to cut hours.
Wall Street analysts have already pointed out that this trend is expected to continue in the coming weeks: “The income is going to be harder” for restaurant companies, admits Vital Knowledge founder Adam Crisafulli.
However, while many restaurants warn of higher costs across the board, investors are showing markets so far believe the impact on earnings is temporary: Brinker’s stock has cut some losses and is now down 4.5%.
Shares of other restaurant companies such as Denny’s, Darden Restaurants and Cheesecake Factory all edged down on the news, but cut most of their losses at noon.
“The Covid push from August exacerbated industry-wide labor and raw materials challenges and impacted our margins and results more than we expected,” said Brinker CEO Whyman Roberts said in a statement.
Brinker said in his announcement he would raise prices to help “offset inflationary costs” related to labor and raw materials in an effort to protect margins in the future. The company’s shares have fallen nearly 17% since the start of the year.
What to watch out for
“Last week’s Domino’s report alluded to these headwinds, but they’re hurting Brinker’s much more,” says Crisafulli. “Investors have been willing to look at most of the margin deficits over the past few weeks, but Brinker’s failure is probably too big to ignore.”
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