Casual Dining Chains Could Lose 75% of Sales: BI's Halen

on restaurants which you have been uniquely hammered. They've been tourced to shut their doors, and there's a question of how quickly they will be able to get back online and how many of them will even survive throughout this. Mike Hallen joining us now, senior restaurant analyst for Bloomberg Intelligence,

joining us on the phone. Mike, do you have a sense of the proportion of restaurants that have closed their doors that will easily get back up and going And I know your look specifically in a lot of the chains that have already closed their doors. Yeah, So you

know it's really going to depend on on the business model, right. So, um, you know, in our in our rolled with the publicly traded chains, if you're a fast food and you're doing you know, between fifty and seventy percent of your business through the drive through and probably another fifteen to twenty via delivery, you're not going to be impacted as much. I mean, granted, you are going to be impacted the

less less people commuting to work. Right, people aren't going out and um running errands and doing some shopping and stopping for a burger while they're out so much, and they're doing a lot more shopping at the grocery store and cooking at home. So sales are still gonna be down. But if you're a fast food and you have a drive through, you know, you're in pretty good shape, you know. But for casual dining, for full service restaurants, it's a

very very different situation, you know. Uh, you know, for example, Texas Roadhouse, a great chain, they only do about seven percent of their sales and to go and they don't have any delivery, and obviously they don't have any drive through. So you know, on casual dining land, you know, for for restaurants that close their dining room, they could lose you know, between seventy five their sales. So, Mike, it give us a sense of kind of how these companies

are trying to cope with it? Will they make it? Are they how are they trying to kind of deal with this complete lack of revenue. Yeah, so for for the casual dining chains, and now we're starting to see with with fast food chains as well. Uh they're fully drawing down on their revolving credit facilities. Uh, they're suspending by backs and and uh suspending their dividends to try to UM hold onto whatever cash flow and raise whatever

cash they can. Uh, they're gonna they're closing stores where it makes sense, um, you know, and they're trying to push delivery and to go as as much as possible, try to grow grow that business as quickly as possible so that they can continue to employ some of their employees, uh stay in front of the customers for whenever this does end. Um. You know. So you know, chains are kind of doing whatever they can, but we expect a

lot of UM store closures. We also saw a note yesterday out that that said Chiefecake Factory is saying that they're not going to pay rent until they can reopen. So, you know, rents are a pretty big expense even if you're shut you know, the rent bill continues to keep coming, so we expect to hear a lot more of this as well, where the the restaurant chains are gonna maybe hold off on paying rent until they can open their

doors again. Mike, I wonder how much this just accelerates a trend that already was in place, because we saw a restaurant traffic go down some of these casual dining places even before the coronavirus, and even amid a really good consumer confidence. I mean, how many of these bankruptcies

would have happened anyway. Yeah. Well, and also there's been you know, low interest rates helping to keep zombie chains alive for quite some time, right, So yeah, I agree, I think this is definitely going to speed up the process. You're gonna see some of the casual dining chains that do do not have a loyal customer base any longer start to close even more stores. I mean, we've seen a lot, We've seen chains like Applebee's, you know, close a lot of stores over the last couple of years.

We expect uh store closures to to accelerate. So yeah, it is kind of accelerating a trend. But you know, some of these you know, you know, I'm going to say the FED and and UM kind of the Wall Street echo chamber and the management teams altogether, uh, kind of put themselves in in a tough position. You know, half of the companies we cover have levered up to

buy buy back stock. Uh, you know at thirty times earnings, you know, and now that these stocks are down six off their highs, they're suspending their buy back programs, right, so you know, their balance sheets on in a in a great spot heading into this which we think is going to exacerbate the problem. Hey, mikew about the mom and pop restaurants, the local restaurants that are shut down, just typically how much how long can they last like that? Yeah,

it's the same type of thing. It's going to depend on their bound sheet. But it's hard. You know, in the restaurant business, you're basically you know, making money, you know, one month out of the year, right, one month out of the year is all your profits. The other eleven months goes towards paying your labor, you know, paying your food costs, paying the rent. It's a very low margin business.

We're talking about mid single digit net margin business. So a lot of these chains can't stay open for long. You know. Thankfully there's some provisions in here, uh for the independence as well as the larger change we covered two uh you know, ball some money. They're gonna get some tax breaks and hopefully hopefully be able to to you know, weather the storm for at least a few months. But just as uum, just to give you some color, you know, the one of the best run chains we

cover is Darting. They were the adults in the room. They did not lever up to buy back their stock. They use their cash flow to do it. They increase their sales and their margins by providing very you know, very good service and good food and motivating the customers to return. Right. So, so you know, they they have only six months of cash basically at their current burn rate,

we're gonna have to leave it there. Mike cal And, senior restaurant analyst for Bloomberg Intelligence, really highlighting what is being felt across the restaurant sector around the country. The Federal Reserve is throwing the kitchen sink at markets in large part in response to the apparent dollar shortage, increasing strains in the dollar funding market, and this has hit

emerging markets particularly hard. Damian Sassour has been tracking its as chief market strategist at Bloomberg Intelligence and he joins US now. Damien, I'm wondering, we are seeing the dollar a week in a bit in the past few sessions, but still the move of it is to be stronger, and I'm wondering how bad has it been in the

emerging markets complex? Yeah, you know, I've been feeling a lot of questions asking what happens if this dollar just keeps rising in em can't pay their debts and dollar and UM with the broad trade weighted US D now at a fifty year high, you're really left with two options if if you're an EM sovereign that's got you know, dollar obligations, UM, do you do not? I mean what was the U S do? Does it do nothing about them? Default?

Does it offer debt forgiveness? In both scenarios, Lisa, they're very inflationary, right, so, especially as the US fiscal situation worsens. I mean, two trillion stimulus is just the tip of the iceberg. It teems and the government reluctant to offer bailouts to Boeing in big companies, I imagine they're not going to be very open to a new Brady plan either. So so EM is going to have a tough time here, So damon give us a sense of kind of where the greatest risk is that you see out there in

EM world. Yeah, you know, I mean it's hard to kind of pick and choose, but you know, there are things that investors can do, uh, you know, if they are indeed willing to take that plunge and invest in emerging market. You know, local assets want us to diversify your funding sources, right, I mean most people dollar investors think, okay, you know, I'm taking the dollars in my pocket, I'm

converting them into e M currencies and investing. But what you can do is you can also spread the dollar exposure, your short dollar exposure now around other developed market companies like the Swiss frank, like the Japanese yea and the British pound, the euro, etcetera. And if you do that, you actually have a much more attractive risk adjusted return profile of historically speaking, obviously, and you can definitely protect protect if the dollar does indeed continue to decline here,

So you know, there is some benefit there. There are ways that you can kind of manage around this. But yeah. I mean it's going to be very volatile, very whippy, and the structure of emerging markets really doesn't offer itself to taking short term risk, if you follow me. I

mean some of these markets are very liquid. Yeah, And talking about that, there's also a question of just how much debt has been incurred by some of these developing markets companies there, and the idea that this imbalanced in dollars isn't just simply a technical problem, but just an overall imbalance where too many, too many dollars were borrowed

by a lot of these countries. And I'm wondering, you know, yes, we're seeing some of the stress eased up, but how much pressure is there still that's going to cause a rash of defaults that people are expecting that may not be fully priced an't even yet. Well, I think you have to look at those that are most exposed, right at least so for me, you know, just looking at you know, you know, you know, emerging market sovereigns that are borrowed in dollars. It's the frontier sovereigns, the oil

exporting frontier sovereigns like Nigeria and Gola, gabone. I mean you've seen Ecuador and now file for default. I mean, those are the ones that are obviously front and center, but you know it's all of those other sovereigns that have um you know, that are relying on tourist revenues, you know, Dominican Republic, Costa Rica. These are big issuers in e M and so you know, there's a lot of dead out there and dollars they're gonna have a lot of difficulty paying them back. But the question becomes

a political one. You know, who do we you know, who do we bail out and who don't we? And you know that can potentially ignite a virtuous cycle of sovereign restructurings that really would break the buck and cause you know, hyper hyperinflationary scare in my mind, So you know, there's really no no easy way to go about it. But I don't think you can ignore it. I mean, what what the U S has done here post It's ignored a lot of the things that could potentially go wrong,

you know, post Doccer, post dog Frank. Now we're just paying for it here. To ignore this would be shortsighted in my view. Alright, so give us a sense of timing Damien, where are we going to see the biggest problems first, do you think? Right? So, it's definitely going to hit the oil exporters first and foremost. They definitely have some capacity to manage through it in the near term, even more so if the dollar continues to come off here. But if the dollar does another you know about face

and really ripped to the upside for whatever reason. You know, Paul Um, you're really going to see a lot of them start, you know, going to the IMF, going to the World Bank. I mean, you've already seen those two big multilaterals turned to the US and say, hey, we need we need help here to sort of to sort of stem the tide. But you know, it's it's it's no real easy question to say. I mean, look, I wouldn't be sitting here talking to I'd be on a

beach somewhere if I knew the timing around this, right. So, So I think that's really what it comes down to. You just have to watch all these little pockets in the market and hope for the best. I mean, you've been covering this market for decades, You've got a lot of contacts. And one reason why I always love speaking with you is you can kind of get a feel for the mood. And honestly, the people who I speak

to just seem exhausted. It's just been a ping pong kind of market going in different directions, popped by uncertainty, poked by depression, and popked by isolation. And I'm wondering where are we in that cycle? I mean, are people actually starting to look for opportunities or people just sort of sitting out and saying this one I don't understand. Alright, So I mean the first and foremost, you know, i'd have to address. All right, let me my sleeves, let's go,

let's do it. Um. So you know, the Japanese currency basis, which was the last one to blow, is finally narrowed, and it's narrowed by overnight, right, I mean you saw you may see that the euro in the pounds are now very very positive, which means they're flushed with dollars. So the dollar hoarding, yes, well it's still you know, persists off. Sure, a lot of dollars being brought at

the issues. So I think this whole you know, thought that there are you know, the top recording not enough dollars let's put that to bed for a minute now. Where the bottlenecks coming up there? Obviously in credit land, no question about it. You've seen the moving spreads. Everyone's seen it, everyone's watching it. And it's the um. It's really the mortgage market that scares me the most. I mean that was the epicenter back in two thousand and eight.

We're starting to see some of these mortgage reads roll, you know, get meet, they're unable to meet margin calls. And these aren't just anyone. These are invest Goo Angelo Gordon tpg UM and and their portfolio is getting taken over by banks and and and being liquidated in the market, and and you know it's it's it's just you know, to bring in people in my mind, like you know who kind of helped us in the past, like Paulson and Guysner and black Rock. I mean that's while that's

all said and good. You know I've said it before, I'll say it again. I'd love to see simmer Simon Potter back at the New York Center Reserve because you know, he used to run the markets. To if there's one person to know where the land mines are and where the bodies are buried at Simon, and so you know, it's interesting how quiet things have been on that front. I'd really like to just see some more clarity as to how we're going to address some of the bottlenecks

that we're seeing abroad. And you know, we see the cross Curency basis and places like Korea are still pretty wide that they still don't have enough dollars and and so you know, we just have to kind of watch all these little elements of the market on the periphery and hope everyone can kind of come out of this. Okay, I guess. I mean, yeah, so Damien thirty seconds any place to hide in emerging markets. So we definitely still

like um receiving an Indonesia on these spikes. I mean, and I think the Indonesian roupie has been one of the better performers today. UM the pace has come off a long way. You've seen that come all the way back. I I like countries that have a geostrategic importance to the United States for no other reason than because the U s print dollars. So you know, there's a lot

of them out there. There's a lot of them that aren't there, and you know, I think that that's where you kind of want to focus if you're looking to wait it out a bit. Damien Sasur, thanks so much for joining us. We always appreciate your perspective on emerging markets UH lots of altility, even above and bound where we're seeing in the broader market. Statement sass Our, chief

Emerging markets credit strategist for Bloomberg Intelligence. As we talked about that two point two trillion dollar plan that the Congress UH is expected to pass today, there is a question of how quickly it can get money out the door and who it gives money to. A big focus has been small and medium sized businesses. Our next guest has a lot of experience with the balance sheets in

all conditions of these companies. Adam Leviton, Professor of Law and of Georgetown Law in Washington, d C. Professor, thank you so much for being with us. You recently penned up ed in the New York Times how to get money to small businesses fast. Passing through the details, it seems like the three hundred and fifty billion dollars estimated to go to small and mid sized businesses grants will be administered by the Small Business Administration, which has four

thousand employees. Are you concerned about the logistics getting the money out the door? Absolutely? The money is not going to move as fast as as we really need it to move. Small businesses are already laying off employees and having trouble meeting their meeting their bills, and they need they need the money not today, they needed it yesterday.

And it's going to take weeks, if not longer, for um these new small business loans, and they're for their forgivable loans, but the interest, the interest is not forgivable on them. Um, it's going to take weeks, if not longer, for that money to get too small businesses. There's gonna have to be a process whereby small businesses apply for the loan, the loans get processed, and then finally the

checks will be dispersed. It is not going to happen instantaneously. So, Professor, is there any mechanism that would be preferable to that? I mean, in reality, can you in fact get cash as small businesses any quicker? Um, there's one way to get cash into small businesses pretty much. Actually, there are

two ways to get it into small businesses immediately. One is in the bill, Um, it's a delay in um payroll taxes because some of the some of the payroll taxes are paid by the business basically your tax withholding, and the bill is allowing businesses to dip into the funds they withhold from your payroll and just pay it to Treasury later. That is one thing to get some cash immediately. And another thing that could get them cash immediately is a debt moratorium or a debt collection moratorium.

And what that does is it if it would affect and that's not in the bill, and I want to be clear, but that would effectively force um UH float in a sort of an extension of payment terms from things like landlords and and lenders to small businesses. That would allow small businesses to prioritize their cash to con maintaining payroll. And then Congress could in theory at least UH compensate lenders and landlords on the back end with something, you say, attacks credit for their UH in the future.

So You've had a lot of experience in this, both in bankruptcy commercial law, but also as former special counsel to the Congressional Oversight Panel for TARP, the Troubled Asset Relief Program back in two thousand eight and two thousand nine. I'm wondering what you think of the process of this bill.

If you talk to representatives, they say, this has moved as fast as anything can move in Washington, d C. If you speak to the businesses, they say, what you say, We needed the checks last week and we've already laid people off. What's your sense those are both true? Um, there's no contradiction there. This This bill moved remark remarkably fast. You know, this is the largest federal spending bill we've ever seen, and it went as Congress goes, at lightning speed.

The problem is that Congress is not set up to deal Uh, it's it's meant to be a deliberative in some sense, and it's not set up for dealing with emergencies with speed. It's there's just an attention between the design of our institutions and the needs of the moment. So, professor, how do you think this stimulus will in fact impact

small and midsize businesses over the next coming weeks and months. Well, there are some small, small and medium sized businesses for which this money is just going to be too late. And um, we don't have a sense of how many of them there are that fall in that category that the there's surprised that the limited data we have on small businesses, and it's it's all kind of problematic because

small businesses are don't don't fit one profile. You know, the the dry cleaner, the restaurant looks very different than the than the small manufacturer, let's say. But in general, small businesses don't have enormous cash reserves. That probably the best guesses that they may maybe have a few weeks or a month cash reserves on hand and and on average, and that means that there are plenty that have less, and those that have less are going to be in real trouble and may not be able to make it

until they until government assistance arrives. The one the ones that can last until they get the assistance. This will keep. What what this will do, it will keep. It will basically put them on life support. The government will take effectively take over payroll and utilities and rent and mortgages and other debt service um for for for quite a while. The real question is how long does the crisis last? Absolutely,

that's kind of been the key question. Adam Levitton, thank you so much for joining US and giving us your thoughts at perspective. Adam Leviton is at Georgetown Law professor and former Special counsel to the Congressional Oversight Panel of TARK. We are seeing gains, as Charlie was saying, in equity markets, which is interesting when you contrast it with the unbelievable number, a record number of unemployment initial jobless claims filed three

point three million. It raises a question here. We knew it was bad, we don't know how bad. This indicates it's very, very bad. And yet is the indication in markets right now that the U. S. Congress can save it, or that the Fed and the Congress and Congress together can somehow cushion the blow and that we've priced in most of the pain. Navals Sym Bloomberg stocks that are

joining us now. Carra Kadonna, chief US economist with Bloomberg Economics. Dave, I want to start with you, is that the implication from the two point seven percent rally we're seeing right now on the SMP. Boy, it sure looks that way, Lisa, especially when you consider what's leading the advance in the S and P five hundred. We're talking synchrony financial capital One and Discover Financial. All these companies are in the credit card business. Now you talk about an area of

the market. We could think people would be concerned given the jump and jobless claims that we just saw, you know, raising the issue of whether people are going to be able to keep up the payments on their credit cards. And yet these stocks are all up like twelve or more, Synchrony up thirteen and a half percent of Capital One actually got an upgrade over at Oppenheimer. The firm moved to the equivalent to buy from hold on the stock. They basically say that company, will you hold up? Okay?

I mean given you everything that's coming in terms of credits, So you know that that's something that really jumps out of this is to see as peers go up as much as they have. I mean, it really gets your attention. Yeah, and and really this is exactly where I wanted to go, Carl. How much is the high number a good thing? And

good is in quotes, not a good thing. It's terrible and a tragedy for all those people losing their jobs, but a sign that at least millions of people will be receiving unemployment benefits potentially cushioning the lack of revenue that they're getting elsewhere, the turn of the market. That's really a signal of a couple of things. Uh. And so first of all, you know, j Pale this morning on the Today Show said that the Fed is nowhere

near running out of ammunition to confront the crisis. Yesterday there was a Bloomberg News scoop that the ECB is getting ready to act more aggressively as well. Uh. And then also what today we see very convincing signs that were close to Congress finally passing the physical stimulus, which two trillion dollars has some multiplicative effects throughout the economy, so the administration is claiming two trillion is more like uh four to six trillion. Nonetheless, this is all providing

important economic support. And to your point, Lisa, a lot of individuals who may have been out of work at least are getting some transfer payments from the government, and in fact, with the fiscal stimulus bill that they can take an additional six hundred dollars per week onto that transfer payment. That certainly doesn't bridge the gap, but it helps to at least offset some of the sting from this hard stop in the economy. So, Carl, I just wanted to get your latest thought coming out of bloomber

Gap Economics. How do you think GDPs can look for the US this year. We've seen a lot of forecast coming out of Wall Street. Just one of our bloomerk Economics is sure So looking at the second quarter, we're looking for a nine percent contraction in the downside scenario. We think that could be closer to fourteen percent. But this entirely depends on the extent of the lockdown. If we're looking at a lockdown of forty five to sixty days,

then those forecasts will be roughly on the market. If we reopen too soon and have to walk back down, or if the lockdown lasts through the entirety of the second quarter, then we're looking for a sharper contraction in the economy. But I think it's too early to be making that call, Dave. On the market side, there's a question of the actual economic effect of the shutdowns, and then there's the effect of whatever is going to probably

be passed today by Congress. Do we have a sense of how much the market gain today is hinging on that bill getting passed today? Bowling in the airline stocks, and you talk about two areas that stand to benefit. You know, we've reported the people familiar with the matter telling us that that Boeing, you know, it may end up with as much as sixty billion dollars in assistance when you count in their suppliers as well. Uh. Coming

out of the deal. Boweling shares up twelve percent at the moment, and you look across the board, you see the airlines higher and they're due for fifty billion dollars and loans and loan guarantees. Delta leading the way there with a gain of almost seven percent. Uh. And actually the airlines are doing substantially better than the cruise lines at this point, which aren't in the same position to get assistance under the measure. I mean, carnivals up, but

you've got Royal Caribbean and Norwegian Cruise Line down. So you know, it goes to show you that there is a real focus on the winners. And I wouldn't say the losers. I mean they certainly if you think about the cruise lines, they've lost plenty already. But the companies that are going to get the most benefit out of this bill are doing relatively well on today's trading. Carl, just real quick here, I would love to get your sense of whether we're going to see another three point

three million initial jobless claims next reading. Well, I think we're going to see something in the million plus territory for sure. The issue we're contending with here as we look at the numbers is that there's a significant backlog of applicants who have not been able to file. Websites are crashing, and Coal center are overwhelmed with the capacity constraints. So I think that we will see at least a

couple more weeks with jobs claimed. The initial claims UH north of a million, it could be two or three million. I don't think we'll see as high of readings going forward as we saw today. Looking at today's number implies five and a half percent on the unemployment rate, so almost at two point increase. We continue to see this, then we're talking about, you know, seven eight percent unemployment in the second quarter. Caracadona, Chief you as economist with

Bloomberg Economics and Dave Wilson Bloomberg Sock Center. Thank you both of you and Paul. Just to get a sense of how significant is three point three million number. Was. It was quadruple the prior record in the nineteen eighties. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa abram Woyit's I'm on

Twitter at Lisa abram woits one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.