Moody's: No Recovery in Restaurant Revenues Until 2011

by: Research Recap

Moody’s said its negative outlook for the U.S. restaurant industry anticipates that high unemployment, elevated consumer-saving rates, low disposable income and cost-saving measures by businesses will continue to pressure restaurant traffic, revenue and earnings.

“Almost every restaurant operator is reporting negative same-store sales,” said Bill Fahy, Moody’s VP-Senior Analyst. “And we expect those declines to continue well into next year.”

In the near term, restaurant traffic will continue to decline through 2010 due primarily to persistently high unemployment and stabilize in 2011, when it reaches an absolute base of dining-out occasions, said Moody’s.

Earnings will remain under pressure as traffic remains weak, promotional activity remains aggressive, and the ability to cut costs further will be challenging.

Cost inflation looms as a potential threat to margins, Moody’s adds. Consequently, the underlying trends for the restaurant industry remain unfavorable. (Click to enlarge)