Sales at U.S. bars and restaurants eroded even further in December 2020 as the industry ended the year still grappling with the COVID-19 pandemic.

December sales at eateries fell at a double-digit pace year over year, registering a drop for the third month in a row and capping off a year of crisis for the restaurant industry. The National Restaurant Association said that restaurant and foodservice sales for the full year 2020 were $240 billion lower than expected levels. Sales slumped 21.2% year over year in December, falling at a faster pace than in the previous two months.

"The restaurant industry slipped into a double-dip recession – well before it even came close to recovering from the original downturn last spring," the National Restaurant Association said in a Jan. 15 report. "As a result, the restaurant industry's road to recovery has grown even longer."

Food service and drinking places shed nearly 400,000 jobs in December, which pushed the industry 2.5 million jobs below its pre-coronavirus employment level, the trade group said. Meanwhile, shares of most of the biggest publicly traded restaurants rose in the month ended Dec. 15.

Sales

Sales for food services and drinking places in December declined 21.2% from the year-ago period to a seasonally adjusted $51.17 billion, according to U.S. Census Bureau advance monthly estimates released Jan. 15.

December's year-over-year food services and drinking sales decline was greater than November's 16.6% year-over-year decline and October's year-over-year decline of 14.4%. On a monthly basis, December's restaurant sales were down 4.5% from November, the National Restaurant Association said.

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Overall retail sales slid more than expected for the month as the coronavirus bit into consumer spending. December's retail sales were down 0.7% from the previous month, coming in at a seasonally adjusted $540.92 billion.

U.S. President-elect Joe Biden's newly-released pandemic relief package includes a proposal for the government to partner with restaurants to feed families in need and help get laid-off restaurant workers back on the job. The National Restaurant Association applauded the package but cautioned that some provisions like raising the minimum wage or eliminating the tipped wage could do more harm than good. Via Twitter, the Independent Restaurant Coalition praised Biden's "repeated and outspoken support for direct aid to independent restaurants and bars."

The number of seated diners in the U.S. was down 60.4% year over year on Jan. 14, the restaurant reservation platform OpenTable reported.

Job losses

Food services and drinking places lost 372,000 jobs in December for a total of 9.8 million jobs, which was 19.3% less than a year ago. Food services and drinking places had 10.2 million jobs in November.

Food services and drinking sales finished 2020 at nearly 2.5 million jobs, or 20%, below their pre-pandemic employment level, according to the National Restaurant Association. The restaurant industry suffered more job losses than any other sector at the outset of the pandemic in March and April, the trade group said. A hiring surge followed that marked the start of a jobs recovery for restaurants in May and June, but the pace of jobs growth slowed from July to October before stalling in November, the National Restaurant Association said.

"After starting out positive, 2020 turned into a devastating year for the restaurant workforce," the National Restaurant Association said in a Jan. 8 report. "Restaurants were hit harder than any other industry during the pandemic, and still have the longest climb back to pre-coronavirus employment levels."

Stocks

Ten of the 15 largest publicly traded U.S. restaurants posted stock gains in the month ended Jan. 14, according to S&P Global Market Intelligence. More broadly, the S&P Composite 1500 Restaurants subindex rose 1% and the S&P Composite 1500 index rose 4.6%.

Shares of Shake Shack Inc. rose 32.2% for the month ended Jan. 14, the biggest gain for the period. The company's average weekly sales and same-store sales continued to recover in the quarter ended Dec. 30, Shake Shack said in a Jan. 12 news release. Digital sales remained at about 59% of Shake Shack's sales, and the company plans to accelerate development of new locations in 2021.

Shares of The Wendy's Co. fell 7.1% for the month ended Jan. 14, the biggest loss for the period. Wendy's International LLC, a Wendy's subsidiary, and Flynn Restaurant Group reached separate purchase agreements with NPC International Inc., the largest franchisee of Wendy's and Pizza Hut in the U.S., for the sale of NPC's assets, according to a Jan. 7 release. Wendy's would acquire NPC's remaining Wendy's restaurants and assign the right to acquire the restaurants to five current Wendy's franchisees. The deals clear the way for NPC to complete its chapter 11 restructuring, the release said.

Vulnerability

The odds that publicly traded restaurant companies would default on their debts within a year was little changed from the previous month, save for one outlier.

A Jan. 15 analysis of the one-year probability of default scores identified 14 U.S. public restaurants with scores ranging from 10.8% to 24.1%, and corresponding implied credit scores of "ccc-" to "ccc+," according to Market Intelligence data. Additionally, one company, Amergent Hospitality Group Inc., had a one-year probability of default score of 43.1% and an implied credit score of "cc." By comparison, the same analysis done Nov. 17 showed a range of 10.4% to 24.1% for 15 companies. The analysis is based on each company's corporate, industry and financial risk and is mainly based on data released through public filings.

Amergent owns, operates and franchises the fast-casual and full service restaurant brands Little Big Burger, Burgers Grilled Right, American Burger Company, and Hooters. Amergent is the product of Chanticleer Holdings restaurant business being spun into a newly created corporate entity. As of Sept. 20, Amergent's working capital deficiency was $8.9 million, the company said in a Nov. 23 SEC filing. "The company's current operating losses, combined with its working capital deficit and uncertainties regarding the impact of COVID-19, raise substantial doubt about our ability to continue as a going concern," the filing said. Amergent did not respond to a request for comment.

Potbelly Corporation again had a 24.1% chance it could default in the next 12 months, and Noodles & Company's chances it could default in the next 12 months was again 21.2%. Neither company responded to a request for comment.

S&P Global's Fundamental Probability of Default Model provides a fundamentals-based view of credit risk for corporations by assessing both business risk — including country risk, industry risk, macroeconomic risk, company competitiveness and company management — as well as financial risk, such as liquidity, profitability, efficiency, debt service capacity and leverage. For a more thorough review of the model, see the PD Model Fundamentals - Public Corporates white paper.