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3 Restaurants That Could See Labor Pressure From Amazon's Wage Increase

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3 Restaurants That Could See Labor Pressure From Amazon's Wage Increase

E-commerce giant Amazon.com, Inc. (NASDAQ: AMZN)'s announcement that it will pay each worker at least $15 per hour could impact the restaurant sector, which is seeing 4-5-percent wage inflation, increased levels of turnovers and a tight labor market, according to Bank of America Merrill Lynch. 

Analyst Gregory Francfort speculated on which restaurant stocks could be most impacted by Amazon's wage hike in a Tuesday note. 

The Thesis

If restaurant chains face labor pressure as a result of Amazon's $15 minimum wage, there are a handful of companies that would see a greater impact than others, Francfort said in the note. (See his track record here.) 

Based on the current average hour wage for leisure and hospitality workers, there are 30 states that average below $15 an hour, the analyst said. 

Companies with the greatest exposure to the bottom 30 states would see the most impact, as a larger average wage increase would be required to grant all employees systemwide a $15 hourly wage, Francfort said.

According to the analyst's research, the companies most at risk are: 

  • Sonic Corporation (NASDAQ: SONC)
  • Chuy's Holdings Inc (NASDAQ: CHUY)
  • Bojangles Inc (NASDAQ: BOJA)

The companies that have higher exposure to areas that are on average closer to $15 per hour would see less pressure, the analyst said:

  • Dunkin Brands Group Inc (NASDAQ: DNKN)
  • Starbucks Corporation (NASDAQ: SBUX)
  • Potbelly Corp (NASDAQ: PBPB)

The Impact On Amazon

The cost to Amazon of paying employees more can be calculated using a series of assumptions, BofA's Justin Post said in a separate note.  

Assuming an average hourly wage of $12.50 based on Indeed and Glassdoor data, a $2.50-per-hour wage increase translates to $2.08 billion in incremental annual operating expenditures, the analyst said. As a result, BofA revised its 2019 Amazon operating income estimate from $17.20 billion — a 6.2-percent margin) — to $15.12 billion, or a 5.4-percent margin.

Related Links:

Amazon Raises Minimum Wage To $15/Hour, Impacting 350K Employees

Casual Dining Stocks Struggle To Cook Up More Foot Traffic

Posted-In: Bank of America Merrill Lynch Gregory Francfort Justin PostAnalyst Color Restaurants Top Stories Analyst Ratings General Best of Benzinga

 

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