Sales at U.S. bars and restaurants in November fell from the previous month as rising cases of COVID-19 spurred tighter dining restrictions and temperatures dropped around the country. Experts see harsh conditions for restaurants to persist for months ahead.

The total number of jobs at food service and drinking places fell in November for the first time in months, casting further doubts that the restaurant industry and its workers will recover anytime soon.

Meanwhile, shares of most of the biggest publicly traded restaurants rose in the month ended Dec. 15.

Cold hard cash

Sales for food services and drinking places in November declined 17.2% from the year-ago period to a seasonally adjusted $53.20 billion, according to U.S. Census Bureau advance monthly estimates released Dec. 16.

November's year-over-year food services and drinking sales decline was worse than October's 14.6% year-over-year decline and September's year-over-year decline of 14.3%. On a monthly basis, November's restaurant sales were down 4%, or $2.2 billion, from October, suggesting the restaurant sales recovery has not only stalled but likely fallen into a "double-dip recession," according to the National Restaurant Association.

All retail sales rose 4.1% from the year-ago period in November to $546.50 billion, which was better than the 3.3% growth for all retail sales in November 2019. November's retail sales were down 1.1% from the previous month.

The restaurant industry's year-over-year comparable sales for the week ending Nov. 29 were the worst experienced by the industry since mid-July, according to Dec. 11 Black Box Intelligence report. It marked the third consecutive week where year-over-year sales growth declined compared to the previous week, Black Box said in its report. While most segments of the restaurant industry are battling negative comparable sales growth, quick service and fast-casual restaurants had positive comparable sales growth during the week ending Nov. 29, according to Black Box.

As winter takes hold across the country, more restaurants are experiencing silent nights.

The onset of colder weather in the U.S. is likely one reason for waning sales as fewer restaurants are able to offer outdoor dining, Black Box said. In late November, 52% of full-service restaurant operators said their restaurant offered on-premise outdoor dining in spaces like patios, decks or sidewalks. The figure was down from 74% in early September. Limited-service restaurants are also pulling back on their outdoor dining, going from 60% that offered it in September to 40% in November.

"With cold weather descending on much of the country, an increasing number of outdoor tables are sitting empty," the National Restaurant Association said.

New England, the Western region, New York and New Jersey are among the areas experiencing larger sales declines, while warmer places like the Southeast, Florida, Texas and the Southwest generally had better comparable sales, according to Black Box.

As outdoor dining withers, rising coronavirus cases in the U.S. have pushed localities and state authorities to crack down on indoor dining, which the Centers for Disease Control and Prevention has tied to higher positivity rates for COVID-19.

As of Dec. 14, indoor dining had been suspended in 10 states and in a number of populous cities like New York, Baltimore and St. Louis, with nine other states operating with indoor dining curfews, according to a Dec. 15 report by Gordon Haskett analyst Jeff Farmer. Indoor dining suspensions have had a negative impact on traffic to restaurants, Farmer said.

California had one of the biggest sales declines for the week ending Nov. 29, likely due to a spike in coronavirus cases, Black Box said. The majority of California is under orders to stay home that include only allowing restaurants to offer takeout and delivery. New York Gov. Andrew Cuomo banned indoor dining in New York City beginning Dec. 14.

Foot traffic and sales declines are likely to worsen for the rest of 2020 and into early 2021 as the pandemic worsens in the U.S. and the number of indoor dining suspensions or curfews grows, Farmer said. Whether optimism over the vaccine rollout will outweigh the mounting challenges in the near term is hard to say, Farmer said.

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The number of seated diners in the U.S. was down 72.4% year over year on Dec. 15, an improvement from the lows of March and April but down from November's worst day on Nov. 30 when the number of seated diners was down 66% from a year ago, the restaurant reservation platform OpenTable reported.

Job losses

After six months of consecutive monthly job gains, the restaurant industry lost jobs for the first time since April.

Food services and drinking places lost 17,400 jobs in November for a total of 10.19 million jobs, which was 16.4% less than a year ago. Food services and drinking places also had 10.21 million jobs in October. Food services and drinking sales remained 2.1 million jobs behind its pre-pandemic levels, the National Restaurant Association said. Half of restaurant operators expect their staffing levels to fall in the next three months, and just 5% of restaurant operators expect to increase staffing levels during the next three months, according to a National Restaurant Association survey fielded in November.

"There doesn't appear to be a significant catalyst for a resumption of restaurant job growth in the immediate future," the National Restaurant Association said in a Dec. 4 report. "Given the rising restrictions on indoor dining and the likelihood of significantly scaled-back holiday celebrations, business conditions will remain extremely challenging in the coming months."

Stocks heat up

Fourteen of the 15 largest publicly traded U.S. restaurants posted stock gains in the month ended Dec. 15, according to S&P Global Market Intelligence. More broadly, the S&P Composite 1500 Restaurants subindex rose 4.6% and the S&P Composite 1500 index jumped 3.6%.

Shares of Chili's Grill & Bar owner Brinker International Inc. rose 16.6% for the month ended Dec. 15, the biggest gain for the period. Chili's comparable sales and comparable traffic have been better than the overall casual dining industry, James Rutherford, a Stephens analyst, said in a Dec. 16 report. Brinker, which also owns Maggiano's Little Italy, on Dec. 16 withdrew its fiscal second-quarter 2021 guidance as its restaurants are impacted by dining room closures and capacity restrictions. Chili's had positive traffic in October, but the restrictions in response to rising cases of COVID-19 will prevent Brinker from carrying out its plans for the quarter, Wyman Roberts, Brinker's CEO, said in a news release.

Brinker reported Dec. 16 comparable sales for company-owned Chili's fell 1% for the month ended Oct. 28. The figure was down 3.9% for the week ended Nov. 4 and has worsened each week since. Comparable sales at company-owned Chili's was down 12.3% for the week ended Dec. 9.

Shares of Domino's Pizza Inc. fell 1.3% for the month ended Dec. 15, the biggest loss for the period. The pizza chain announced Dec. 14 that it would give over $9.6 million in special bonuses in December to hourly employees and drivers across its company-owned stores and supply chain.

Vulnerability

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

A Dec. 15 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 Nov. 17 also showed a range of 10.4% to 24.1%. The analysis is based on each company's corporate, industry and financial risk and is mainly based on data released through public filings.

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

Potbelly Corp. again had the highest odds with a 24.1% chance it could default in the next 12 months, the same odds it could do so from the previous month's report. Potbelly did not respond to a request for comment.

Noodles & Co. again had the second-highest odds it could default in the next 12 months at 21.2%, the same figure as the previous month. Noodles did not respond 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.