What Reopening Momentum Means for Cheescake Factory, Brinker and Bloomin'

Barron's

Teresa Rivas

May 28, 2020

As many states begin to ease their lockdowns, a number of restaurants have started serving dine-in customers. That has led to a boost in traffic, and it might not fade as quickly as naysayers think, argues Gordon Haskett.

Analyst Jeff Farmer takes a look at sales from more than 23,000 restaurants, and writes that "casual dining companies will eventually see their reopening recovery momentum fade, but not in the near future."

He notes that an increase in traffic that began before Memorial Day continued to build over the long holiday weekend, and more than 40% of the country is slated to see restaurants reopen in June. This good news for the group. Data from recent weeks show that, at least in states that were quick to reopen, sales have remained strong week after week, disproving concerns that demand would see only a short-lived uptick. And given that most of the U.S. population lives in states that haven't yet allowed for dine-in eating to resume, even more pent-up demand is likely on the way.

Restaurants in states that have allowed customers to dine in have seen about a 15 point year-over-year increase in sales growth in the first 10 days of reopening versus the last 10 days before closures. As more locations return, especially in high-population coastal states such as California and New York, Farmer thinks "that the sales volume recovery will have legs well into June."

He notes that the casual-dining segment may have the biggest unknowns in the industry, regarding how big and how long a recovery might be, but he thinks the restaurants that have seen the best recovery trends -- aided by digital and takeout orders during lockdowns -- and those with tight cost controls are in the best position.

His favorites are Bloomin' Brands (BLMN) whose brands include Outback Steakhouse and Bonefish Grill, Cheesecake Factory (CAKE), and Brinker International (EAT), which includes Chili's Grill & Bar and Maggiano's Little Italy.