Delta Variant Puts Restaurant Rebound at Risk

Consumers Opt to Dine In

The restaurant industry’s pandemic recovery is at risk as the Delta variant spreads through the country, prompting more consumers to stay home. That could hurt Ruth’s Hospitality (RUTH), Bloomin’ Brands (BLMN), Denny’s (DENN), Texas Roadhouse (TXRH), Cheesecake Factory (CAKE), and other restaurant operators which had been gearing up for more dine-in business.

Restaurant executives are still optimistic they can maintain sales growth, but the industry may be headed for a bumpy ride. Restaurant visits in Los Angeles declined 17% for the week ending August 1. The number of consumers eating out was rising prior to the city reinstituting mask mandates. Sales in restaurants have been declining nationally since the end of July.

Restaurant Operators Mull New Pandemic Measures

Restaurants had to overhaul their business operations overnight as the pandemic resulted in shutdowns and social-distancing requirements. Now, restaurants are assessing rules regarding vaccinations as cities institute new policies.

Beginning in September, people dining in restaurants in New York City will need to show proof of vaccination, while Los Angeles is considering similar requirements in indoor public spaces. Some restaurant operators are also mulling whether they should bring back plexiglass shields, thermometers, mask mandates for employees, and other social-distancing measures.

Still Reason for Optimism

Despite the rise in COVID-19 cases, vaccination rules, and consumers' reluctance to eat out again, some industry executives think they can keep sales up even if the pandemic worsens. They point to a stronger-than-anticipated recovery so far and their ability to weather the previous outbreaks.

Same-store sales in June at Denny’s, Cheesecake Factory, and Texas Roadhouse were up significantly compared to 2019 levels. Still, restaurant owners acknowledge that recovery will not be a straight shot. Until the pandemic is contained, the restaurant industry will likely experience fits and starts of recovery.

Investing AMA with Liz Young, SoFi's Head of Investment Strategy

Liz Young will be on hand to answer all—yes, all!—those investment questions you’ve always wanted to ask (and remember—there’s no such thing as a stupid question). Join us on the 18th at 12pm PT to learn more!

Home Builders Lose out on Sales Amid Record Demand

Home Builders Struggle to Meet Demand

Some of the nation’s biggest home builders including D. R. Horton (DHI) and KB Home (KBH) are losing out on new sales as they struggle to catch up with outsized demand. Sales of new homes set multiple records during 2020 and the early part of 2021 as low interest rates and a shift to working remotely drove demand for more space.

Homebuilders have not been able to meet that demand due to labor shortages, supply shortages, lack of available property, and rising materials costs. As a result, companies have been turning away business. Net sales orders in D. R. Horton’s second quarter fell 17% year-over-year as a result of the current market trends.

Home Prices at Record Highs

The inability for home builders to meet the demand is driving home prices to record highs. This comes at a time when home prices are already at all-time highs. In June the median price for a new home was $361,800—up 6.1% year-over-year.

For individual home builders the increases are even greater. The average price for home sales closed during the second quarter at Taylor Morrison Home (TMHC) increased 9.8% compared to a year ago. New order prices in the quarter increased 31.8%. Meritage Homes (MTH), which reported a 18% rise in new orders during the second quarter, has seen its average sales price increase 4%.

Stocks Hold Despite Lost Sales

As wait lists to buy homes get longer, different builders are taking different approaches. Some are selling homes as the orders come in while others are requiring offers above list prices. Others are holding lotteries to sell what limited inventory they have. A lot of builders are also holding off selling properties until they are almost complete to take advantage of rising home prices.

While home builders have been losing sales in this red-hot real estate market, their stocks have not suffered. The S&P Homebuilders Select Industry Index is 31% higher—even though it is off its high, which was set in May. It will be interesting to see if investors continue to reward the group if supply constraints continue to hurt sales.

GreenLight to Go Public via SPAC Deal

GreenLight Valued at Around $1.5 billion

GreenLight Biosciences, an RNA technology startup working on mRNA vaccines, is going public through a SPAC deal. Environmental Impact Acquisition (ENVI), a blank-check company with backing from Canaccord Genuity Group (CCORF), is buying the RNA tech company in a deal which values it at around $1.5 billion. GreenLight Biosciences is among the RNA technology firms working on mRNA vaccines for COVID-19 and other illnesses.

The company is also developing alternatives to pesticides and herbicides using RNA tech. The startup is expected to earn $280 million in the deal which also includes a $105 million private investment in public equity. Investors in the PIPE include BNP Paribas’ green fund and the Jeremy and Hannelore Grantham Environmental Trust.

GreenLight Races to Launch RNA Products

GreenLight Biosciences, which launched in 2008, is using messenger RNA to develop vaccines at a faster rate than with traditional vaccine technologies. With messenger RNA or mRNA, instructions are encoded in DNA and sent to the cells to follow. In the case of the COVID-19 vaccine, mRNA teaches human cells to produce a protein that is similar to the one found in the coronavirus. That prompts the body to release an immune response.

GreenLight is aiming to start COVID-19 vaccine clinical trials in Africa during the first three months of 2022. Outside of COVID-19, GreenLight is working on a seasonal flu vaccine and a vaccine for sickle-cell disease.

SPACs Eye Sustainability Startups

In addition to using RNA tech to develop vaccinations, GreenLight is using RNA to develop pesticides which target mites that hurt bee colonies and potato beetles which destroy crops. The company hopes to have products in the market in the coming years if it can win regulatory approval.

Environmental Impact Acquisition is among the blank-check companies which are merging with private firms and taking them public. SPACs have raised close to $120 billion in 2021, with many of the deals focused on sustainability. While the number of deals have slowed in recent months, transactions are still happening at a regular clip. It will be interesting to see which green company will be next to announce a SPAC deal.