Restaurants are filing for bankruptcy at a staggering rate — and these 7 companies could be the next to default

Restaurants are struggling to stay afloat during the coronavirus pandemic. Irene Jiang / Business Insider
  • Restaurants are struggling to stay afloat during the coronavirus pandemic.
  • S&P Global Market Intelligence released a report analysing which restaurant companies are most likely to default on their debt within the next year.
  • Dave & Buster’s has the highest odds of default, followed by Outback Steakhouse’s parent company Bloomin’ Brands and Denny’s.
  • Visit Business Insider’s homepage for more stories.

Restaurants are struggling to stay afloat amid the coronavirus pandemic.

Parent companies of Souplantation, Chuck E. Cheese, and California Pizza Kitchen have been forced to file for bankruptcy in recent months. Franchisees for major chains including Subway, IHOP, and Pizza Hut have also filed for bankruptcy, including NPC International – which operates more restaurant locations than any other franchisee in the US.

S&P Global Market Intelligence released a report this week calculating the odds that publicly traded restaurant companies will default on their debt within the next year. The probabilities were determined by analysing fluctuations in different companies’ share prices, as well as other US and “industry-related risks.”

Many of the publicly traded companies that are most at risk are sit-down chains, such as Outback Steakhouse and Denny’s. Concepts that mix food and entertainment, such as Dave & Buster’s, are also struggling.

S&P Global found that the median one-year probability of default for US restaurants was 10% in July, down from a peak of 35% in April. Independent restaurants are in worse financial shape than major chains, the research firm said. Additionally, franchisees are in a more dangerous position than most corporate parent companies.

“Nearly every big chain has done something to support its balance sheet,” James Rutherford, a vice president and research analyst at Stephens Inc., told S&P Global. “The place I do see risk for default is going to be with franchisees.”

Here are the seven companies that are in the worst position, as the pandemic drags into the second half of 2020.

7. Chilli’s and Maggiano’s parent company Brinker International


One year probability of default: 6.9%

Maggiano’s same-store sales were down 44.6% and Chilli’s dropped by 10.9% in the most recent quarter, Brinker reported on Wednesday. Chilli’s is pushing off-premise hard, launching a virtual chain called “It’s Just Wings” in June.

6. Shake Shack


One year probability of default: 7.5%

Of all major US burger chains, Shake Shack was least prepared for the pandemic. With a greater percentage of locations in cities and no drive-thrus, Shake Shack struggled to quickly adjust when dining rooms closed.

Read more:
Shake Shack, Panera, and Chipotle open drive-thrus to keep up with fast-food rivals like McDonald’s and Taco Bell

5. BJ’s Restaurants


One year probability of default: 9.3%

Like many sit-down chains, BJ’s sales slipped when COVID-19 cases surged in late June.

“As a result, our restaurants are currently maintaining approximately 60% of historical business volumes compared to June when our restaurants recaptured more than 70% of historical business volumes,” CEO Greg Trojan said in a statement in July.

4. The Cheesecake Factory


One year probability of default: 11.7%

The Cheesecake Factory reported at the end of July that same-store sales were down 32% in the month. Gordon Haskett analyst Jeff Farmer wrote in a research note. At the time, the chain had the “opportunity to expand patios and drive off-peak sales – but management acknowledges that those opportunities are relatively limited.”

3. Denny’s


One year probability of default: 11.9%

Denny’s reported in late July that same-stores sales dropped 56.9% in the US in the most recent quarter. Restaurant Business reported the chain is struggling to keep locations open around the clock, as employees are unwilling to work the late-night and overnight shifts.

A Denny’s representative said in a statement to Business Insider that the company is “confident in our strategy, the overall improvement in both industry and brand results, and the strength of our balance sheet.”

“Moving forward we firmly trust in our brand’s ability to weather this storm,” the representative continued. “We are grateful to our devoted guests and employees who have relied on us for a safe and convenient dining option, ultimately supporting our resilience during this period.”

2. Outback Steakhouse’s parent company Bloomin’ Brands


One year probability of default: 13.2%

Bloomin’ Brands’ recovery slowed in July, as many restaurants were forced to once again close dining rooms when COVID-19 cases surged around the country.

“Bloomin’ Brands has strong financial health and recent sales performance,” a representative for the company said in a statement to Business Insider. “We have more than $US500 million in the bank, solid sales with positive cash flow and a proven takeout and delivery business. Additionally, we have not laid off or furloughed any employees and provided relief pay when our dining rooms were closed.”

Read more:
Restaurant sales climbed as stay-at-home orders lifted across the US. Now foot traffic has slumped again.

1. Dave & Buster’s


One year probability of default: 16.1%

Experiential chains are struggling across the board in the pandemic, as it is nearly impossible to translate arcade games and entertainment to a take-out model. While S&P Global determined that Dave & Buster’s had the highest chance of defaulting of all public restaurant companies, it is actually better positioned than privately owned rivals.

“With many competing ‘eatertainment’ concepts still struggling to reopen, Dave & Buster’s appears poised to benefit from a more favourable competitive environment post-pandemic, following several years of pressure from the rapid expansion of myriad new concepts,” Sharon Zackfia, a William Blair analyst, said in a June 12 note quoted in the S&P report.