Labor issues, from shortages to strikes, are intensifying and hurting company profits. The increasing likelihood that more wage gains lie ahead implies higher costs and thinner margins, while also undermining the prospect of transitory inflation.
The latest labor news comes from restaurant firm Brinker International Inc. — the Dallas-based parent of restaurant chains Chili’s and Maggiano’s Little Italy. The company owns, operates or franchises more than 1,600 restaurants in 29 countries.
Brinker shares fell 9.1% Wednesday after its fiscal first-quarter profit fell far short of analysts’ forecasts as it faces higher commodity and labor costs. Peer Chipotle Mexican Grill Inc., which is due to report on Thursday, also slipped in Wednesday trading, as did other dining stocks.
The “COVID surge starting in August exacerbated the industry-wide labor and commodity challenges and impacted our margins and bottom line more than we anticipated,” Brinker CEO Wyman Roberts said in the statement. “We are responding to these COVID headwinds with increased focus on hiring and retention efforts, and working with our partners to gain further stabilization of the supply chain environment.”
Brinker joins a variety of firms reporting earnings with warnings about labor problems, from JB Hunt Transport Services Inc., the country’s biggest long-haul trucking company, to JPMorgan Chase & Co., its biggest bank.
Among 23 S&P 500 companies that reported from Oct. 4 to Oct. 15, labor was a top concern, with double the number of firms discussing labor versus those mentioning logistics and port congestion, according to a check cited by RBC strategist Lori Calvasina in a recent note.
“Dialogue with our key customers reveals both a challenged labor market and a pent-up need to increase the in-stock levels across the system,” JB Hunt said during its earnings call, adding that it’s “not insulated from the labor dynamics mentioned above for our customers.” The firm has “reached all-time highs in the need for company drivers in all segments as well as openings we have on our office and field teams.”
On JPMorgan’s call, Chief Financial Officer Jeremy Barnum said “labor inflation is definitely a watch item for us.”
Starting wages are also jumping across the board, while a series of strikes is unfolding after years of little labor unrest. Tractor maker Deere & Co. is experiencing its first major labor action since 1986, while striking cereal-plant workers hampered shares of food giant Kellogg Co. The shift toward growing employee power could rattle a broadening pool of investors.
Felice Maranz, Bloomberg