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More tough times ahead for restaurants as hurricanes clobber sales

  • Hurricane Harvey battered restaurant sales in August, and it looks like Hurricane Irma will do the same in September.
  • Harvey weighed heavily on same-store sales of local restaurants and dragged down overall sales for the industry.
  • With Irma aiming at Florida, Canaccord analyst Lynne Collier said she expects September same-store sales at casual dining restaurants to be down 2 to 4 percent.
Tourists walk past a restaurant, closed in preparation for Hurricane Irma, in Fort Lauderdale, Florida on September 7, 2017.
Michele Eve Sandberg | AFP | Getty Images
Tourists walk past a restaurant, closed in preparation for Hurricane Irma, in Fort Lauderdale, Florida on September 7, 2017.

Heavy rainfall and flooding battered restaurant sales in August, and that trend looks like it will continue well into September.

Hurricane Harvey ripped through Houston and other parts of southeast Texas last week, weighing heavily on same-store sales of restaurants and dragging down overall same-store sales for the industry.

"August is really a tale of two different periods," said Victor Fernandez, executive director of insights and knowledge for TDn2K, a segment of Black Box Intelligence.

He said that during the first three weeks of the month, same-store sales were down about 1.4 percent, a narrower drop than the 2.8 percent in July. However, following Harvey, same-store sales at the end of August were down 2 percent, with traffic lagging 3.9 percent, according to Black Box Intelligence.

"Results from the final week of August were very soft, with two major events impacting results," Fernandez said. "The first, and most extensive, was the heartbreaking tragedy of Hurricane Harvey. Same-store sales in Texas declined 15 percent that last week, almost 13 percentage points below the average of the first three weeks of the month."

Fernandez said the second event was the Mayweather-McGregor boxing match, which may have drawn customers to casual dining bar and grill chains but likely negatively impacted full-service restaurants that do not showcase sports in restaurant.

Houston has some 13,000 restaurants, and more than 7,000 of those locations are chain restaurants. Lynne Collier, an analyst at Canaccord, said last month that Houston, which is one of the nation's largest restaurant markets, represents about 2 percent of the restaurant footprint in the country.

On Friday, Collier said she expects that same-store sales for the casual dining industry, in particular, fell 2.5 percent in August.

With Hurricane Irma aiming at Florida and part of the lower East Coast, Collier said she also expects September same-store sales in this sector to be down 2 to 4 percent.

In a note to investors, Collier updated the list of restaurants she covers that she sees as the most at risk for sales losses due to destruction by Irma: Bojangles, Fiesta Restaurant Group, which owns Taco Cabana; Zoe's Kitchen; Outback Steakhouse owner Bloomin' Brands; and Ruby Tuesday.

"We remain cautious and believe stocks will be remain under pressure in the near term until we gain greater visibility around the impact of Hurricane Irma," Collier wrote. "Looking beyond these near term headwinds, many restaurants are trading at valuation levels not seen since the recession, and we believe the negative sentiment towards casual dining is virtually unprecedented."

Restaurants that have a significant number of locations in the area stand to see sales shrink in September as deadly winds, storm surges and flooding cause closures and displace workers.

These effects could be felt for months after the storm since most of relief efforts will be geared toward rebuilding homes, not businesses.