Will Restaurant Stocks Crumble Under Shutdown Pressure?http://www.fool.com/investing/general/2013/10/09/shutdown-pressuring-restaurant-stocks.aspx Daniel James
October 9, 2013
The broader market reacted to the government shutdown with something of a yawn. On the day itself, indexes were up comfortably. So far, it seems that most investors are not particularly worried, and the market is telling us it has confidence in a timely resolution. The restaurant industry has been taking it on the chin though, as concerns over the shutdown bogging down an already sluggish consumer spending climate had investors worried. Is the sell-off justified?
During the shutdown, 700,000 federal employees will be on unpaid leave, as US government services deemed non-essential are put on hold. Institutions like the Smithsonian, Library of Congress and National Parks are all affected, as well as the Departments of Education, Energy, and Health and Human Services. As for the exceptions, the US postal service will continue chugging along, as will the Department of Defense. According to Goldman Sachs, a three-week shutdown could affect US GDP by as much as 0.9% this quarter . So far, the process seems all but deadlocked, with neither side willing to compromise .
What's in your wallet?
Also on review for a downgrade is Darden Restaurants, with Moody's citing weak earnings growth and stiff competition. Indeed, the company has missed analyst expectations for two quarters in a row now, with first quarter earnings per share dropping to $0.53 from $0.85 for a stiff decline of nearly 40%. Recent acquisition Yard House posted a 1.5% drop in same-store sales, while flagship brand Olive Garden posted a 4% decline. To combat the earnings decline, the company announced a number of cost-cutting measures including job and spending program cuts .
More bad news
As Yum! recently took over one of these chains, investors and consumers al