CNBC’s Jim Cramer on Thursday had a dire outlook for the restaurant industry after listening in to Yum Brands’ conference call and digesting the company’s quarterly results.
“Welcome to the restaurant apocalypse,” the “Mad Money” host, himself a restaurant owner, said. “If you’re in the business of serving people food in a brick-and-mortar setting, all I can say is stick a fork in it, because that business is done.”
Yum Brands posted a double-digit fall in same-store sales last quarter, but Pizza Hut — one of five fast-food chains in the company’s portfolio — managed to grow sales in the U.S. by 1%.
That feat was made, despite a substantial number of locations remaining closed. Cramer said this is not good news for traditional restaurants, who rely on on-premise diners in a world where seating capacities are limited by the ongoing pandemic.
“Yum is the largest restaurant company on earth. Pizza Hut’s their largest division, and it might not need dining rooms at all,” Cramer said. “After listening to the protocols they’ve had to put in place to keep a few dining rooms open, it might not even be worth the effort.”
Yum Brands, which owns Pizza Hut, KFC and Taco Bell, among other brands, reported a 15% drop in global same-store sales in a quarter marred by lockdown orders. While store closures reached a peak in April, CEO David Gibbs on the conference call said the company has yet to reopen 24,000 locations.
The company bested Wall Street’s estimates for the second quarter, recording $1.2 billion in revenue and 82 cents in adjusted earnings per share. Analysts were looking for $1.19 billion and 54 cents, respectively.
Though Pizza Hut saw global same-store sales decline by 9%, its strong domestic performance offset weakness in foreign markets. The U.S. market makes up 42% of business, which led to a 1% growth in receipts.
“That terrifies me because I’m in the restaurant business and most of us smaller operators simply are not built around takeout,” said Cramer, who owns Bar San Miguel and co-owns The Longshoreman in Brooklyn, New York.
Gibbs said that carryout has been a “high-margin business” for KFC and Pizza Hut, adding that digital sales was a big factor in improving sales since the onset of the novel coronavirus outbreak.
“Unfortunately, your favorite sit-down restaurant probably can’t survive on delivery alone,” Cramer said. “I’m not saying they’ll all go under, but that restaurant that you like had better be a labor of love for the chef, because after listening to the Yum call, it’s clear that the brick and mortar restaurant biz has no way to turn a profit in the age of Covid.”
CEC Entertainment, the parent of Chuck E. Cheese; Garden Fresh Restaurants, the parent of Souplantation and Sweet Tomatoes; FoodFirst Global Restaurants, the parent of Brio and Bravo; and Vapiano have all filed for bankruptcy during the pandemic.
“If the next round of stimulus doesn’t make a major effort to save these independent operators — something bigger than the paycheck protection program — then you can say goodbye to your favorite place to eat, unless they can hold on until the now dreamed of vaccine somehow arrives,” Cramer said.