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Moody's projects improved outlook for U.S. restaurant industry

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Moody’s Investors Service sees improved recovery prospects for the U.S. restaurant industry next year, buoyed by projected revenue growth of 15% despite ongoing concerns of the length and impact of the coronavirus pandemic.

Moody’s on Tuesday shifted its outlook on restaurants from negative to stable on the expectations of “slowly” improving business conditions over the next 12 to 18 months, according to analyst Bill Fahy, a Moody’s vice president and senior credit officer.

An improved outlook based on higher projected restaurant earnings and cash flow could reflect lower credit-stress factors for operators whose rent-lease revenues support retail centers pooled into mortgage-backed securities, or that feed franchise-fee whole business securitizations.

Revenues have fallen more than 30% this year from dine-in restrictions and non-essential business closings enacted by local and state authorities nationwide seeking to stem the outbreak of COVID-19.

That has led to store closings which, Fahy says, means the number of U.S. restaurants is expected to decline “for the first time in a long while,” according to Moody’s report. "And more closures are likely, depending on how long this operating environment continues."

Most losses were generated in the casual dining sector, as quick-serve restaurants relying on drive-thru and other take-out options were better able to maintain business operations during the spring and summer as business closings peaked.

Meanwhile, according to Moody’s, the restaurant industry has seeing growing competition from supermarkets, convenience stores and companies such as Dunkin’ Donuts and Starbucks that are increasing their offerings of prepared meals.

But Fay says many casual restaurants have been able to “rapidly” pivot nearly all their dine-in service to curbside pickup, to-go and delivery options for customers. And revenues should grow about 15% from 2020’s depressed levels as consumers gradually return to dining out and government restrictions ease.”

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