Higher wages in restaurants hit profits – some warn more pain is yet to come – .

Higher wages in restaurants hit profits – some warn more pain is yet to come – .

Employees prepare orders for customers at a Chipotle Mexican Grill restaurant in Hollywood, California.
Patrick T. Fallon | Bloomberg | Getty Images
Customers are returning in droves to restaurants, but workers are not, putting even more pressure on fast food chains to retain market share and protect profits while navigating a tight labor market.
Restaurant executives painted a grim picture of staffing issues for investors in their income calls over the past two weeks. CEOs like Ritch Allison of Domino’s Pizza, Brian Niccol of Chipotle Mexican Grill and Chris Kempczinski of McDonald’s have shared details of how restaurants have shortened hours of operation, restricted ordering methods and lost sales because of they can’t find enough workers. Some chains have been hit hardest by the labor shortage, such as Restaurant Brands International’s Popeyes, which has seen around 40% of its dining rooms closed due to understaffing.

“This is kind of where we separate the wheat from the chaff,” said Kevin McCarthy, analyst at Neuberger Berman.

Raising wages is a popular approach to staffing problems, although it is not a perfect solution. McDonald’s salaries at its franchise restaurants have increased by about 10% so far this year as part of an effort to attract workers. Higher labor costs have driven menu prices up, which are up about 6% from a year ago, according to McDonald’s executives.

Starbucks plans to spend approximately $ 1 billion in fiscal 2021 and 2022 to improve benefits for its baristas, including two planned salary increases. The move lowered its profit forecast for fiscal 2022, disappointing investors and reducing market capitalization by $ 8 billion. But McCarthy believes more companies should take a page from the company manual and invest in their people.
“The stock is down, but I think they are winning. Excellent decision on their part, it is certainly the right decision in the long term, ”he said.

McCarthy said he assumed catering companies were losing around 5 traffic points due to understaffing.

For the remainder of 2021 and 2022, most publicly traded restaurants have said they expect the problem to persist for at least several quarters. Texas Roadhouse CEO Gerald Morgan told analysts on Thursday that there were “a few” more candidates in the candidate pool, but he still believes there is a long way to go before the company does not have enough employees to meet demand.

Mark Kalinowski, founder of Kalinowski Equity Research, said executives of private catering companies are more pessimistic about the timing of the labor market recovery.

“Usually when top people in private companies say it’s going to get worse, it usually is,” Kalinowski said.

He downgraded Starbucks’ 2022 earnings estimates and Domino’s U.S. same-store sales growth next quarter after the latest corporate earnings reports.

“Not all businesses will necessarily see a change in sales forecasts, but you need to be more careful on the margin side, especially for concepts that have 100% US-owned locations or are stores. significantly, ”Kalinowski said.

Kalinowski said he favors stocks with a higher concentration of franchised restaurants. McDonald’s, for example, only operates 5% of its sites in the United States, while the rest are run by franchisees.

More restaurant income is yet to come. Outback Steakhouse owner Bloomin ‘Brands, Wingstop and Applebee owner Dine Brands and IHOP parent company Dine Brands are among the companies expected to release their latest results next week. Some analysts, like Nick Setyan of Wedbush Securities, have changed their estimates, given earnings reports from comparable companies.


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