Hurricanes, Security Issues Stump Sales at Fogo de Chão
Like many restaurant brands across the nation, Fogo de Chão felt the financial strain of Mother Nature in the third quarter. The chain, which has 36 restaurants in the U.S. to go along with nine in Brazil, two joint ventures in Mexico, and a joint venture in Jeddah, Saudi Arabia, released its preliminarily, unaudited financial results Wednesday for the period ended October 1.
Consolidated comparable restaurant sales fell 5.1 percent, with U.S. company-owned comps down 2.1 percent. But if you exclude the impact of hurricane activity during the quarter, Fogo de Chão said, U.S. sales decreased just 1.4 percent.
There were some other negative factors at play for the brand. Its company-owned comparable sales in Brazil plummeted 17.1 percent. This, also, was the result of extraneous factors, the company said. In this case, if you excluded the impact of the two Rio de Janeiro locations, comps actually rose 3 percent. These results included lapping last year’s Olympic Games and security issues in the city during the third quarter.
The estimated impact of the hurricanes on the company’s net income per share was about 3 cents. Fogo de Chão now expects GAAP net income per share to be between 8 and 10 cents.
Larry Johnson, the chief executive officer of Fogo de Chão, said the company lost more than two weeks worth of operating days thanks to the storms. Fogo de Chão removed certain restaurants directly impacted by Hurricane Harvey (two in Houston), Irma (one in Miami), and Maria (San Juan) from the comparable restaurant sales base during the third quarter. Restaurants indirectly impacted included locations in Orlando, Atlanta, Dunwoody, San Antonio, and Austin.
“Though we anticipated traffic pressures as a result of lapping last year’s Olympic Games in Brazil, we also continued to feel the impact of industry softness in the U.S.,” Johnson said in a statement. “Our third-quarter results were further impacted by short-term challenges, including three hurricanes; a spike in beef inflation due to retail demand pressures; and security issues in Rio de Janeiro, as a result of increased crime the government is currently addressing. More specifically, as a result of the hurricane activity, we lost 19 operating days during the quarter and experienced a decline in sales and traffic that extended before landfall through the post-hurricane clean up periods. At the same time I am proud to share that we continued to pay our employees throughout extended closures during what has been a very difficult time for many.”
Fogo de Chão said it maintained comprehensive insurance coverage on all of its restaurants, including property, flood, and business interruption, and is working with its insurance providers to assess the overall impact from the three hurricanes.
“Irrespective of these third-quarter issues, the fundamentals of our business are healthy as demonstrated by a return to more normalized operating activity early in the fourth quarter,” he said.
Johnson also spoke about some of the brand’s current innovations. “We remain committed to our strategic platforms of daypart expansion, price optionality and all-day value and continue to enhance these strategies with both core and seasonal innovation, including our new fall menu which features a limited-time, bone-in Cowboy Ribeye,” he added. “We believe this focus, as well as our enhanced group sales effort, positions us well for the near and long term.”
Fogo de Chão has served over $500,000 in meals to more than 12,500 medical, police, and first responders in the Houston area, Johnson said.
“It was a true honor to serve the community, and we thank them for their service,” he said.
Fogo de Chão opened the Middle East joint venture in the quarter, in Jeddah, and plans to debut at least two additional company-owned restaurants during the fourth quarter.
The company updated its guidance to comparable restaurant sales declines of 1.5–2.5 percent at corporate-run stores, as well as GAAP diluted net income per share to range between 74–77 cents and adjusted diluted net income per share to range between 77–80 cents.