Shares of McDonald's (MCD 1.77%), Darden Restaurants (DRI 3.64%), and Wendy's (WEN 4.76%) fell as much as 6.1%, 5.2%, and 6.1% on Friday afternoon, respectively, amid fears of the impact of the ongoing global coronavirus outbreak on the broader restaurant industry.
To be fair, all three restaurant stocks recouped some of their early losses just before the markets closed out the week, with McDonald's ultimately losing 3.5%, Darden dropping 1.9%, and Wendy's slumping 5.4%. Their late rebound was helped by a partial recovery in the most widely followed stock market indexes over the final 15 minutes of the day -- albeit following what turned out to be an absolutely brutal week for the broader markets with the S&P 500 plunging 11.5%.
With a growing number of new coronavirus cases in the U.S., however, it makes sense that investors might fret over the possibility of decreased foot traffic to crowded restaurant chains in the coming months.
Still, it's worth taking a closer look at each of these companies' situations to get a better idea of where they stand today.
Extending a post-earnings drop
It certainly didn't help that Wendy's only just dropped more than 8% on Thursday after the fast-food chain's reasonably strong fourth-quarter 2019 results were overshadowed by underwhelming forward guidance.
On one hand, Wendy's told investors to expect full-year 2020 global systemwide sales to increase to a range of $12 billion to $12.5 billion (up around 12% at the midpoint from $10.94 billion last year), helped in part by its impending breakfast launch in the United States this Monday, March 2. On the other hand, the company also said adjusted earnings per share in 2020 would arrive in the range of $0.60 to $0.62, up a modest 3.4% from $0.59 per share in 2019 and well below Wall Street's estimates for $0.65 per share.
After coupling Wendy's earnings headwinds with the broader market's weakness and coronavirus worries, the stock understandably extended its losses on Friday.
Fending off a new threat
Incidentally, McDonald's must contend with not only the same coronavirus concerns, but also fending off Wendy's aforementioned efforts to muscle into that lucrative breakfast daypart.
To the latter end, yesterday morning McDonald's announced it will offer free Egg McMuffins on March 2 to consumers who download their mobile App and redeem the offer Monday morning. The chain also declared March 2nd "National Egg McMuffin Day," capping a brazen attempt at deflecting media attention from Wendy's amid its big launch day.
But that effort seems unlikely to change the buzz surrounding the biggest breakfast market entrant since Taco Bell in 2014. And while I think McDonald's will be just fine over the long term, it's hard to blame rattled investors for their caution.
Holding back already modest growth
Finally, the threat of falling restaurant traffic seems even more pronounced for the biggest leaders in casual dining, including Olive Garden and LongHorn Steakhouse parent Darden Restaurants.
The company most recently announced fiscal second-quarter 2020 results in late December, detailing sluggish sales increases driven by 2% growth in comparable-store sales. Still Darden management was quick to point out their comps growth outpaced that of the broader casual dining industry. But the stock could be further punished if that growth stumbles when Darden announces fiscal Q3 2020 results in a few weeks.