Large Restaurant Chains Weather Pandemic Storms

Large Restaurant Chains Take Supply Disruptions in Stride

Supply disruptions, rising food prices, and labor shortages have put pressure on restaurant operators across the country, but arger chains including Darden Restaurants (DRI), Cracker Barrel (CBRL), and Cheesecake Factory (CAKE) have been faring better than their smaller counterparts.

In fact, last week Darden upped its sales forecast for the current fiscal year to $9.5 billion from $9.35 billion. For the quarter ending in August, revenue increased 8% year-over-year. Even with inflation of 4%, Darden is still expected to post record profits in 2021. Darden is the parent company of Olive Garden, Red Lobster, and other nationwide restaurant chains. Meanwhile, Cracker Barrel’s fiscal fourth-quarter revenue matched pre-pandemic levels.

The Impact of Labor Shortages

Once labor shortages improve, large restaurant chains could see even more growth. The lack of workers has hurt restaurants’ ability to serve customers, with some restaurants reducing hours or keeping tables empty.

At Darden’s LongHorn Steakhouse, which is almost fully staffed, profits jumped 45% compared to the summer of 2019. However, Olive Garden closed dining rooms this summer due to staff shortages. As a result, its profits were flat during the same period. Once labor shortages ease, these restaurant chains are likely to see sales rise even more.

Even inflation should not hurt the restaurant operators’ bottom lines too much. In August prices at restaurants increased 4.7% year-over-year, which is a mild uptick.

Investors Aren’t So Sure

Restaurant chains are poised to grow as labor shortages abate, but you wouldn’t know it from their stocks’ performance. Aside from Darden, which is trading near an all-time high, restaurant stocks are in the doldrums. Cracker Barrel is down 20% from its high this year and Cheesecake Factory is down 24%. Shares of Brinker International (EAT), which owns Chili’s, are 34% lower.

The pandemic has created a slew of challenges for the restaurant industry. But as some of these issues improve, restaurants are likely to benefit. It will be interesting to see how long labor shortages will last and how restaurant chains will continue to overcome them.

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