The restaurant sector is probably the hardest-hit sector by the novel coronavirus pandemic. Hence, restaurant stocks have fallen by the wayside and continue to show little progress so far. A lot of them have suspended dividends in light of their tumbling earnings.
The Invesco Dynamic Food & Beverage ETF (NYSEARCA:PBJ) is down by roughly 9.6% this year, while the S&P 500 is up 8%.
Perhaps the companies most affected in the sector are those who are heavily dependent on dine-in customers. Such companies aren’t well-versed with the delivery game and have suffered the brunt of the crisis. Hence, restaurant owners have been aggressively pursuing pickup or delivery options such as Postmate and DoorDash. However, such a solution is temporary and cannot take restaurant businesses out of the current rut.
Let’s look at some of the top restaurant stocks which were pulverized by Covid-19:
- Potbelly Corp (NASDAQ:PBPB)
- Good Times Restaurant (NASDAQ: GTIM)
- Ark Restaurants Corp (NASDAQ: ARKR)
Restaurant Stocks: Potbelly Corp (PBPB)
Potbelly is a quick-service neighborhood sandwich shop. It specializes in fresh sandwiches operating in 30 states with more than 400 outlets. The pandemic has destroyed top and bottom-lines for Potbelly, with PBPB stock down roughly 13% this year. With virtually no earnings on the horizon, expect PBPB stock to continue its bearish run.
Second-quarter earnings laid to rest its going-concern issues. Still, revenue is down 47% compared to the same period last year. Adjusted net loss grew exponentially to a negative $14.9 million from the $0.1 million it made last year. The company closed 16 stores in the period and renegotiated 187 of its leases. Like with other companies, its efforts to expand off-premise sales resulted in a healthy 46% increase in digital sales.
The future seems tough for Potbelly at this stage. Despite improvements in sales volumes over the years, it has struggled with margins. With deliveries being the highest cost option, expect its operating margin problems to increase.
Good Times Restaurants (GTIM)
Good Times Restaurants is a holding company which owns, controls and franchises several hamburger restaurants in the U.S. Its primary segments include Good Times Burgers, Frozen Custard and Bad Daddy’s. Despite witnessing immense growth in revenue, it continues to struggle with margins and profitability. Covid-19 has intensified its problems, with GTIM stock dropping roughly 15% over the past year.
The company recently reported its expectedly weak third-quarter results. Revenue was down 17.3% for the quarter compared to the $24.4 million it made last year. However, same-store sales improved by 11.9% for Good Times Burgers. Net income tanked 44.4% compared to the same period last year. Due to the uncertainty surrounding the situation, management feels it is impossible to provide an outlook for this year and 2021.
Additionally, its financial flexibility is also a cause for concern. Though cash equivalents have grown during the quarter, the company’s debt numbers have increased by a considerable margin. Financial leverage is at its highest in the past decade. Therefore, with such volatility, it is tough to invest in the stock at this time.
Ark Restaurants Corp. (ARKR)
Ark Restaurant Corp. is a restaurant group that operates catering operations, restaurants and bars in major cities across the U.S. ARKR stock has shed roughly 45% of its value this year on the back of the coronavirus-led market slowdown. Its performance before the pandemic was consistent with healthy margins and improvements in revenue. It is one of the better performing small-cap restaurant stocks in the sector.
Revenue plummeted 83% in the third quarter to approximately $7.2 million. Additionally, company-wide same-store sales aren’t pertinent as stores remained temporarily closed. It couldn’t rake a profit in the third quarter, with its loss per share at 72 cents compared to an earning-per-share of $1.14 in the prior-year period.
In addition to the slowdown in revenue, Covid-19 related expenses were at a whopping $3 million. The company has shored up as much liquidity as possible through belt-tightening initiatives, suspending dividend payments, and loan management. The future looks uncertain at this point. Management believes it’s tough to predict the future at this point, especially regarding its return to full capacity. There it should be more of the same until the end of the year, at least.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
