TSX:SRV.UN - Post by User
Post by
logicandinertiaon Dec 03, 2020 8:35am
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Post# 32024754
Cost reductions and CEWS impact
Cost reductions and CEWS impactWhile SIR didn't explicitly break out the impact of the government CEWS program, the reduction in costs to run those restaurants was just extraordinary in the fourth quarter.
In the fourth quarter of 2019, Sir Corp's restaurant operations generated $97 million in revenue, offset by $88.9 million in costs. Included in the costs were deprecation and amortization (D&A) of $3.3 million, so ex-that item, COSTS ex-D&A were $85.6 million.
In the fourth quarter of 2020, Sir Corp's restaurant operations generated $34.5 million in revenue, offset by $31.9 million in costs. Included in the costs was D&A of $7 million (bit of assumption as not broken down between D&A allocated to restaurants vs corporate overhead for the quarter), so COSTS ex-D&A were $25 million.
Revenue drop YoY for the quarter: 64.5%
Cost of restaurant operations (ex-D&A) drop YoY for the quarter: 70.9%
Having had experience operating and investing in businesses, there is usually negative leverage when revenues drop materially, as a percentage of your cost base is fixed. This is obviously a benefit when revenues are climbing. So for costs to running the restaurants to fall FASTER than revenues is unique, and has to be attributed to a combination of CEWS and good job by management of saving money where they could.
In the midst of this pandemic, and with all the moving pieces, comforting that the restaurants could still generate cash flow and profits while running at 1/2 capacity in the latest quarter (patios also helped during summertime).
It isn't just SIR experiencing this dynamic. Receipe Unlimited is primarily franchised, but have corporate restaurants and broke this down in latest quarter. Revenues for the corporate stores were down 35.9% for the sep quarter, but costs fell by 37.1%, owing in large part to the big subsidy provided by the federal government.
Conditions for the restaurants are not ideal, but the better operators are flexing their cost structures and benefiting from the Federal subsidies to stabilize balance sheets and assure lenders. With vaccines beginning their rollouts and CEWS program extended into 2021, this isn't nearly as bad a situation as it could have been...
Good luck.