The following tables list the YTD impact that changes in Labor Costs have had on the public restaurant companies, both individually and collectively.

In summary, the 3Q17 was worse for the industry and its segments. Collectively, the industry experienced a reduction of $200M in EBITDA through the third quarter of 2017 (excluding CMG – which is a unique case).

4Q17 results start this week.


The QSR Segment:

YTD 3Q17 EBITDA fell by nearly$100M due primarily to higher labor costs.  The segment floundered with nominally positive same-store sales until the 3Q17 when they flattened to 0%.  Collectively, the QSR segment EBITDA had a rough 1Q17, down $27.0M (w/o CMG) and then cut loses by nearly 66% in the 2Q17, but got hammered hard again in the 3Q17, falling by $57.1M.

McDonalds’s had flat labor comparisons, until 3Q17 and then got hit hard with a $45.8M increase in labor costs.

JACK, ARCO, & FRGI, each had negative impacts on EBITDA of approximately $8.0M due to rising labor costs.  FRGI experienced severe, >10% negative same-store sales throughout the year, while JACK generated nominally negative same-store sales.  ARCO reported large positive same-store sales, principally generated by inflationary price adjustments, even as traffic was flat to down.

A bright spot in the QSR segment was CMG.  Their positive labor comparisons came from the large positive same-store sales rebound that occurred over the last nine months, most of which occurred in the 1Q17.  Then, labor gains dropped significantly as improving same-store sales comparisons slowed. Overall, CMG put $65.6M back on the bottom line as compared to the prior year.  However, CMG had another food incident in mid-December 2017 which may negatively impact 2018 labor costs.

Casual Dining:

The segment lost more than $100M in EBITDA due to higher labor costs during the first nine months of 2017.  In addition, most Casual Dining companies faced negative same-store sales throughout the year.  Similar to QSR, Casual Dining had a difficult 1Q17 (-$41.1M) and then cut losses in half by the 2Q17, but got hit hard again in the 3Q17, (-$46.5M).

You can see in the tables, every company but three reported negative YTD labor cost comparisons.  Those companies generated only a net $3.3M gain.  CBRL at $1.6M in gains, stood out as the company with the best labor cost comparison.  PLAY was close behind at $1.4M.  BBRG, after struggling last year, notched some small positive gains of $0.2M.

The top 4 worst performing companies (BLMN, TXRH, EAT & RRGB) lost a combined $68.1M in the 3Q17 YTD.

BLMN experienced a $25.0M decline in EBITDA directly attributable to labor cost increases.  Moderately negative same-store sales impacted labor costs.  In our opinion, the labor cost comparisons were more than the negative same-store sales should have warranted.

TXRH experienced a $21.5M decrease in EBITDA as a result of higher labor costs. However, TXRH was an exception with positive same-store sales and, in our opinion, should have leveraged labor costs.

EAT (Brinker) lost $11.4M in labor cost comparisons as 3Q doubled the loss of the 1Q17.  Brinker’s 2Q17 labor cost comparison was flat.  These results came in the face of moderate same-store sales declines.

RRGB (Red Robin) had negative labor costs comparisons throughout the year, totaling $10.4M.  Their quarterly negative cost comparisons became less negative as its quarterly comps improved to flat by the 3Q.

The preceding information is the work of NRCP. It cannot be copied, or reproduced without the express written consent of NRCP.

National Retail Concept Partners, LLC is a full-service consultancy based in Denver, CO. working with a variety of industries, including the automotive, retail, restaurant and hospitality industries. Partners Larry DeVries and Dean Haskell wrote the preceding post. These recurring posts can be accessed at their LinkedIn profiles. NRCP recently shared its labor optimization success at the Restaurant Finance Conference. The partners can be reached by email at ldevries@nrcpartners.comand Mr. DeVries is based in Denver, Colorado and Mr. Haskell is based in Nashville, Tennessee.

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