Ceconomy (TG:CEC)
Historical Stock Chart

From May 2019 to May 2024

Restaurants are taking precautions - both in their stores and financial outlooks - as they gauge the impact of the A/H1N1 flu outbreak.

With consumers spooked about gathering in public places, restaurant chains are experiencing lost traffic and sales. Others are being forced to close locations in Mexico City, losing out on valuable days for business, particularly for full-service chains that do most of their business in their dining rooms.

Chuck E. Cheese operator CEC Entertainment Inc. (CEC) said Friday same-store sales have dropped sharply since the swine-flu outbreak became news, as families become cautious about bringing their kids to play at the restaurant's arcade and other games. CEC says it is sanitizing restrooms, rides and tables more often now to keep guests and employees safe.

After reporting a strong fiscal first quarter, CEC declined to issue a sales outlook as the impact from lost sales couldn't yet be measured, though it hopes the fear lifts in the coming weeks.

"We are hopeful that any negative impact from the swine flu could moderate by the end of May," CEC Chief Executive Michael Magusiak told investors on an earnings call.

Investors appeared to shake off the fear, with CEC shares rising $3.25, or 10.7%, in recent trading to $33.71.

Earlier in the week, Burger King Holdings Inc. (BKC) cut its fiscal-year outlook due in part to the swine flu's impact in Mexico, where the company is looking at double-digit declines in same-store sales in the near term.

Brinker International Inc. (EAT) has 24 franchised restaurants that remain closed in Mexico City, though it is offering orders for pick-up at its Chili's Grill & Bar, a spokeswoman said.

Starbucks Corp. (SBUX), with 261 locations in Mexico, only has orders to go in its Mexico City coffeehouses, while seven stores at universities are outright closed.

As fear around the outbreak spreads, analysts say that restaurants in the southwest border states could be hardest hit. A Morgan Keegan & Co. analyst cited BJ's Restaurants Inc. (BJRI), P.F. Chang's China Bistro Inc. (PFCB) and Cheesecake Factory Inc. (CAKE) as having among the largest exposure to the border states.

Another byproduct of the illness could come in commodities. Though the virus can't be contracted by eating pork, analysts expect demand for pig meat to plummet in the coming weeks in favor of beef and chicken.

If more chickens are slaughtered for their breast meat, that could flood the market with secondary chicken parts, potentially benefiting chains like Buffalo Wild Wings Inc. (BWLD), a big buyer of wings, and Chipotle Mexican Grill Inc. (CMG), which uses legs and thighs, according to Oppenheimer & Co. restaurant analyst Matthew DiFrisco.

While second-quarter sales expectations may need to be tweaked, analysts see any impact from this flu outbreak as short-lived, much like in prior flu scares. Yum Brands Inc.'s (YUM) KFC chain saw sales drop significantly in Thailand and other Asian countries following the bird-flu outbreak in 2006, but sales returned to normal levels within six weeks.

-By Paul Ziobro, Dow Jones Newswires; 201-938-2046; paul.ziobro@dowjones.com