RESEARCH: Restaurants, Food & Beverage Industry Report

16 October 2017

Declining traffic tallies, stiff competition, new restaurant entrants, variable preferences, and lack of relief on the expense-side continue to create a difficult operating environment for companies in the restaurant, food & beverage sectors. According to Zacks Equity Research, 2Q17 was the sixth consecutive quarter of negative same-store sales for the restaurant industry.

 

In this report, we discuss topics and concerns facing the industry. We also illustrate complementary proprietary, macro-level data sets and analyses that help provide color on the sector’s current state. We also look at certain corporate loans backed by restaurant companies that business development companies (BDCs) took a stake in. 

 

We continue to monitor several restaurant credits that may continue to be under pressure as they attempt to negotiate covenant relaxes, refinance debt and maintain adequate liquidity. 

 

Publicly traded restaurant operators tracked by Debtwire Middle Market are trading at an ~9.4x multiple of 2017E EBITDA (see page 4), while their stock is down on average ~16% YTD, as compared to S&P 500, which is up ~12%. 

 

Looking ahead, considering the descent in sales and profitability throughout the sector, some restaurants can look forward to favorable comparisons against a weak prior year. With that said, given the uncertainty in the sector, the brick-and-mortar exposure and our expectation of a continued highly competitive environment, we think lenders will remain selective and borrowers may face unfavorable financing terms (in some cases), especially in the middle market. 

 

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