Restaurants

Analysts see tough times ahead for restaurant industry

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The restaurant industry could be headed for a rough patch.

Two Wall Street analysts have lowered estimates industrywide, among the reasons they cited were wage inflation, slowing same-store sales and even a possible recession.

In a research note Tuesday, Jefferies analyst Andy Barish called the top of the U.S. restaurant cycle.

"We have finished an extensive study on restaurant supply and the concurrent impact on [same-store sales] and labor," Barish wrote. "We believe the industry has at least 18 months of challenges ahead in terms of softer [same-store sales] and higher labor costs because of capacity growth and labor tightness, a year after the stock peak in summer '15."

Barish, who lowered 2017 earnings-per-share estimates by an average of 3 percent, noted that the industry has become oversaturated with restaurant options, leading to slower foot traffic at major chains.

"In addition, convenience stores, grocery, meal delivery and other channels continue to compete more intensely for 'share of stomach,'" Barish wrote.

Stifel analyst Paul Westra also was bearish on restaurant stocks, forecasting that the U.S. economy will fall into a recession within the next three to nine months — a precursor to historically poor performances for the sector.

"In the year preceding the last three U.S. recessions, on average, restaurant stocks have declined 23 percent," he wrote in a research note Tuesday.

During the second half of the year, Westra expects a 20 percent average decline for restaurant stocks, he said.