Restaurant stocks have been all over the map in recent weeks, swinging on news about the coronavirus pandemic as the industry is one of the most threatened by the outbreak. Restaurants across the country have been forced to limit themselves to takeout and delivery to stop the spread of the virus.
Today was no different as industry stocks fell in tandem with the broader market, which was sliding after President Trump said yesterday that the next two weeks could be "very, very painful" as deaths from COVID-19 mount. The government also predicted that the virus would cause between 100,000 and 240,000 deaths in the U.S. in the coming months.
Not surprisingly, that announcement affected the restaurant sector, which is hoping for a quick end to the outbreak so locations can reopen and business can return to normal. As of 12:10 p.m. EDT, a number of restaurant stocks were trading lower including Dave & Buster's (NASDAQ:PLAY), which was down 18%, Wendy's(NASDAQ:WEN), which was 6.7% lower, BJ's Restaurants (NASDAQ:BJRI), which had fallen 15%, and Darden Restaurants (NYSE:DRI), which was off 15.8%. At the same time, the S&P 500 index had given up 3.7%.
Dave & Buster's, the eat-and-play chain that may be the most vulnerable of the group since a majority of its business comes from on-location amusements, was sliding on a negative analyst note today. SunTrust analyst Jake Bartlett maintained a rating of hold on Dave & Buster's, but lowered his price target from $42 to $13. He said the chain was in the weakest position of the restaurants he covered as the company only has sufficient liquidity to last about 14 to 15 weeks with no sales. He also expects the company to announce severe cost cuts when it reports earnings tomorrow afternoon. As of the company's most recent earnings report, it had just $20.9 million in cash and $640.4 million in debt.
Wendy's actually got an analyst upgrade yesterday, but the stock was still falling on the broader market headwinds today as investors adjusted their expectations for restaurant reopenings. Last week, Wendy's said in a business update that it would close most of the dining rooms in its restaurants, relying on drive-thru and delivery for sales. It would also defer collections on rent and royalties from franchisees for the next three months
There was no specific news out on BJ's Restaurants today, but the company issued a similar update last week, saying that its cash position was solid after drawing down the full $250 million in its credit facility. It did suspend its dividend as it works to conserve cash. BJ's also said that it estimated it would have $5 million in weekly operating costs in a scenario where all of its locations would close, meaning the company has more than a year's worth of liquidity to survive the current economic climate.
Finally, Olive Garden-parent Darden was also skidding today, as casual-dining stocks are particularly at risk from the lockdown orders since most of their business depends on dine-in customers. Like other restaurant stocks, Darden has pulled its guidance for the year, suspended its dividend, and drawn down its $750 million credit facility.
Investors should expect restaurant stocks to continue to be volatile as the sector swings on news about the broader coronavirus crisis and its economic impact. The big question for these companies is when will they finally get to reopen, and if consumers are willing to visit them even when they do, since fears about the virus could persist and a recession is likely. Right now, no one knows the answer to that, though it appears that restaurants will be closed for at least another month as President Trump said social distancing guidelines would be in place for another 30 days.
Restaurant investors should then expect to wait months, rather than weeks, to see these companies return to normal business.