Restaurant stocks are taking it on the chin today as cities across the U.S. shut down restaurants and begin to close down to control the coronavirus pandemic. Shares of Dave & Buster's Entertainment Inc (NASDAQ:PLAY), Chipotle Mexican Grill, Inc. (NYSE:CMG), Texas Roadhouse Inc (NASDAQ:TXRH), BJ's Restaurants, Inc. (NASDAQ:BJRI), and Darling Ingredients (NYSE:DAR) all dropped more than 10% today, and some fell a lot more.
|Restaurant||Change at 3:20 p.m EDT||Max Change|
|Dave & Buster's Entertainment||(17.6%)||(29.4%)|
|Chipotle Mexican Grill||(13.5%)||(20.9%)|
One of the first responses cities have had to the coronavirus pandemic is to shut down gathering places for 50 people or more. The most commonly visited of these are restaurants, which can have hundreds of people come through in a day.
Initial measures have been to shut restaurants down a couple of weeks and limit business to takeout or delivery. The downtime will be devastating for most companies in the industry and is already resulting in the layoff of hundreds of thousands of employees nationwide.
What we don't know is when the business will return or what it will look like when it does. Consumers may keep their distance for months, and there will certainly be new scrutiny on how safe it will be to eat at restaurants while coronavirus is out there.
The restaurants who survive may actually be in a great position long-term if rivals don't make it through this downturn. And some have options that will soften the landing.
One that I think will be better a few years from now is Chipotle Mexican Grill, which can keep most restaurants open and serve only take-out or delivery services. Instead of just being a restaurant stock, it could become something of a consumer staple in these hard times. This may be an opportunity to introduce customers to those services and provide some much-needed comfort food at the same time.
As much as there might be some bright spots, there's a lot of uncertainty for restaurants, and some will certainly go out of business because of this crisis. So, investors will want to consider how strong balance sheets are and how many options companies have to adapt the business long-term. This crisis may last for a few months, and companies who can't absorb that impact won't be a discount at any price.