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Dining out: October US restaurant sales stall as tough winter rolls in

Sales at U.S. bars and restaurants stalled for another month in October as states bolster pandemic-related restrictions and the industry braces for an even tougher winter with limited outdoor dining possibilities.

The pace at which food services and drinking places added jobs in October suggests a full recovery will not come until late 2021 at the earliest, the National Restaurant Association said in a report Nov. 6.

Meanwhile, shares of most of the biggest publicly traded restaurants rose in the month ended Nov. 16.

Sales stall

Sales for food services and drinking places in October declined 14.2% from the year-ago period to a seasonally adjusted $55.63 billion, according to U.S. Census Bureau advance monthly estimates released Nov. 17. October's year-over-year food services and drinking sales decline was comparable to September's 14.3% year-over-year decline and improved from August's year-over-year decline of 15.8%.

All retail sales rose 5.7% from the year ago period in October to $553.33 billion, which was better than the 3.1% growth for all retail sales in October 2019.

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October's restaurant sales marked the first month-to-month decline since April when the industry began to bear the full brunt of pandemic dining restrictions. The October figure of $55.63 billion came in lower than September's sales of $55.70 billion, according to a preliminary estimate from the Census Bureau. Many restaurants, especially ones with drive-thru, delivery and takeout operations, have proven resilient in the face of a challenging environment. Still, sales at eating and drinking places remained nearly $10 billion below their pre-coronavirus levels posted in January and February.

"October's sales decline is a troubling sign for the industry, as the month likely included some of the last opportunities for outdoor dining in many parts of the country," the National Restaurant Association said in a Nov. 17 report. "Factoring in the indoor dining restrictions that are currently being reimposed in some jurisdictions, it becomes clear that the winter months will represent an extremely challenging period for restaurants that rely on on-premises business."

The restaurant industry's year-over-year comparable sales for the week ending Nov. 1 were the worst experienced by the industry in the last 10 weeks, according to a Black Box Intelligence report from Nov. 13. Soaring cases of COIVD-19 are hurting restaurant sales and are expected to continue to do so, particularly if government regulations begin to tighten, Black Box said in its report.

In California, where officials say rising coronavirus cases threaten to overwhelm the state's healthcare system, most restaurants have had to effectively close their dining rooms as the state pulls the emergency brake on its economy to stop the spread of the virus. Companies impacted by California's restrictions include Denny's Corp., which has 24% of its stores in California, and Dine Brands Global Inc., which has 14% of its IHOP locations and 8% of its Applebee's locations in California, according to a Nov. 16 report by Truist Securities analyst Jake Bartlett.

On Nov. 11, New York announced a 10 p.m. curfew for bars and restaurants. Restaurants can still offer curbside, pick-up and delivery after 10 p.m. but cannot serve alcohol to go. New York Governor Andrew Cuomo said places that serve alcohol are one of three main areas where coronavirus cases are being spread.

"While the industry is operationally more prepared today than in March, a second shutdown will likely have meaningful repercussions against a backdrop of uncertainty regarding the timing of a reopen and government relief," Lauren Silberman, a Credit Suisse analyst, said in a report Nov. 13. "Landlords do not appear willing to provide much relief as they are also facing challenges with elevated vacancies."

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

The number of seated diners in the U.S. was down 57.5% year over year on Nov. 16, which was an improvement from the doldrums of March and April but close to November's low of a 60.6% year-over-year decline posted on Nov. 3, which was also Election Day, the restaurant reservation platform OpenTable reported.

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Job gains slow

Food services and drinking places added 192,200 jobs in October for a total of 10.2 million jobs, which was 16.1% less than a year ago. October marked the sixth month in a row of job gains for the sector but the pace of job growth was much slower than the sector's rebound in the spring, and food services and drinking sales remained 2.1 million jobs behind its pre-pandemic levels, the National Restaurant Association said.

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Share prices

Nine of the 15 largest publicly traded U.S. restaurants posted stock gains in the month ended Nov. 16, according to S&P Global Market Intelligence. More broadly, the S&P Composite 1500 Restaurants subindex rose 1.3% and the S&P Composite 1500 index jumped 4.5%.

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Shares of Aramark, a food services provider, rose 24.7% for the month ended Nov. 16, the biggest gain of the period. Aramark reported Nov. 17 a fourth-quarter adjusted loss per share of 35 cents, just below the mean consensus analyst estimate for normalized loss per share of 34 cents, according to S&P Capital IQ. The company expects its organic revenue to improve over the course of fiscal 2021.

Shares of Chipotle Mexican Grill Inc. fell 5.9% in the month ended Nov. 16, the biggest drop for the period. The company reported Oct. 21 third-quarter earnings that beat expectations. Chipotle on Nov. 11 announced plans to open its first digital-only restaurant offering solely pick-up and delivery orders.

Vulnerability

The odds that publicly traded restaurant companies would default on their debts within a year ticked up from the previous month.

A Nov. 17 analysis of the one-year probability of default scores identified 15 U.S. public restaurants with scores ranging from 10.4% to 24.1%, and corresponding implied credit scores of "ccc-" to "ccc+," according to Market Intelligence data. By comparison, the same analysis done on Oct. 15 showed a range of 8.4% to 22.4%.

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The three public restaurant companies estimated most likely to default were the same ones from the previous month's analysis.

Potbelly Corporation again had the highest odds with a 24.1% chance it could default in the next 12 months, up from the 22.4% chance it could do so from the previous month's report. A spokesperson for Potbelly said the company was confident in the strength of the business.

Noodles & Company had a 21.2% chance it could default in the next 12 months, up from the 16.2% chance it could do so from the last report. Brinker International Inc. had a 16.3% chance it could default in the next 12 months, which was similar to its 16.4% chance it could do so from the last report. Noodles and Brinker did not respond to requests for comment.