Stifel analyst Paul Westra downgraded the restaurant industry in a note released today, slashing estimates and ratings on 11 stocks in the sector, while warning that a slowdown in the restaurant industry is a harbinger for an overall economic recession.
The report warns that the restaurant industry is facing a perfect storm of slowing demand, rising minimum wage mandates across the country and minimal opportunity for commodity cost declines. This fits with the thesis laid out by KeyBanc analysts last week, suggested last week when upgrading Papa John's Pizza on the expectations that the recent surge in political unrest and terrorism fears would prompt more Americans to stay at home and order food instead of eating out.
As Westra says, "Today, we adopt a bearish outlook for restaurants as we confidently believe that, at a minimum, the simultaneous -150 basis points to -200bps deceleration of restaurant industry comps across all categories during the second quarter within our most recent Stifel Sales Survey reflects the start of a U.S. Restaurant Recession"
However, it won't be just a "restaurant recession" - according to the analyst, the weakness would promptly spillover to the broader economy: "restaurants have historically led the market lower during the three to six-month periods prior to the start of the prior three U.S. recessions."
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