Economists have been predicting a U.S. recession for more than a year now as the Federal Reserve raises interest rates and inflation saps consumer spending power. But those predictions are all over the place. The economy keeps creating jobs. And Goldman Sachs just this week reduced its recession odds to just 25%.
The uncertainty isn’t keeping analysts from asking almost every executive about it on earnings calls and during presentations. And executives have, mostly, responded with a shrug, based on transcripts on the financial services site Sentieo/AlphaSense.
“Our job is not to worry about whether the economy is going to be favorable for us or not,” Yum Brands CEO David Gibbs said last week at one such investor conference.
Not everyone holds that same sentiment. Operators of fast-food brands, which are cheaper and more recession resistant, are more confident than operators of, say, family-dining chains that are less so.
“What we’re experiencing is some reduced visit frequency from the younger cohorts, which coincides with a sharp downturn in consumer sentiment among those younger cohorts,” Cracker Barrel CMO Jennifer Tate told analysts this week. The company is seeing a “meaningful” traffic decline.
Other executives, however, are not seeing similar results. “We’ve spent a lot of time looking at our numbers to see if there’s any trends that we should be aware of, changes in consumer behavior or anything along those lines,” Dave & Buster’s CEO Chris Morris said on Tuesday. “There was nothing noteworthy there.”
Eatertainment chains such as Dave & Buster’s have been outperforming other concepts of late, largely because consumers are going out and doing things, fulfilling some demand pent-up during the pandemic. But Dave & Buster’s executives said they haven’t seen any change in how much consumers are spending when they go in. They are still filling their gameplay “Power Cards” with the same amount they did last year. “The health of the consumer is still there,” CFO Michael Quartieri said.
For the most part, fast-food chain executives like Gibbs have been more confident in the coming months than executives in other sectors, in part because of the belief that any pullback in consumer sentiment will lead more diners to shift from costlier restaurants to cheaper concepts. “Our brands are built to be incredibly resilient and to win in every environment,” Gibbs said.
The same is true for Potbelly, which has seen a resurgence of sales of late at least in part due to people returning to the business-heavy markets where it has many of its locations. And the company says it has marketing funds to use even if a downturn does come.
“We’re driving record sales and continuing to drive traffic growth and taking share and still have more marketing dollars that we could spend as long as we continue to prove their effectiveness,” Potbelly CFO Steven Cirulis said last month. “That gives us confidence, even in a bit of uncertainty as it relates to the economy, which we always have to be mindful of. But we feel like we’ve got some control over our destiny.”
But even others say there are things they can do in the event of a downturn. For full-service restaurants, that includes focusing on the basics.
“If the consumer was going to pull back, they’re going to take less trips to restaurants in general,” Brinker International CEO Kevin Hochman said Wednesday. “The most important thing we can do is make sure we have a great experience so we get more of those trips, because in recessionary times, consumers can’t afford for things to fail, whether they’re consumer goods or restaurant visits.”
“They don’t have as much disposable income to spend on them,” he added. “So the ones that they chose, they need to have confidence in.”
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