TravelCenters of America (NASDAQ: TA) is slowly reopening dine-in restaurants at its travel plazas where allowed, but some changes forced by the COVID-19 pandemic may never be reversed.
“We have already undertaken rolling some locations on and we’re doing it in a prudent and self-disciplined way,” TA CEO Jon Pertchik said on a first-quarter earnings call on Tuesday.
That means fewer hours, about half as many menu items, and as little as 25% occupancy based on state-by-state guidelines. It also means many of the 2,900 employees laid off April 17 may not return to work for some time – if ever.
“The salad bar and buffet features won’t be coming back – at least in this initial opening,” TA President Barry Richards said. “And that landscape could be changed forever just given the public reaction.”
Pertchik echoed that sentiment.
“In some unexpected ways, this pandemic gives us an opportunity to look really hard at how our full-service restaurants operate to become more efficient,” he said.
First quarter financials
The closing of the dine-in restaurants at TA’s travel plazas during the pandemic contributed to the company’s first-quarter loss of $18.5 million, or $2.23 per shared, 31% greater than the $12.7 million, or $1.58 per share, loss in the first quarter of 2019.
TA made more money on diesel fuel sales in the quarter because of lower prices and a surge in demand as coronavirus-driven lockdowns and shelter-in-place orders took effect in late March. At the same time, gasoline sales plummeted with the lack of movement of passenger traffic.
Repair service revenue also took a hit because mild temperatures led to fewer truck breakdowns than the extremely cold temperatures a year ago.
As part of cutting capital spending, TA has delayed for one year a plan to convert 20 of its Iron Skillet and Quaker Steak & Lube restaurants to International House of Pancakes (IHOP) locations. TA agreed in October 2019 to remake up to 94 of its restaurants into IHOPs over the next five years.
The average investment per site for the IHOP rebrandings is expected to be about $1.1 million. TA budgeted $118 million in capital spending this year, a figure it has reduced to $62 million.
“We’re also prepared to put our foot slowly and cautiously on the accelerator,” depending on the pace of economic recovery, Pertchik said.
Pertchik said a corporate reorganization announced April 30 affected every department, including the layoff of 130 employees at a cost of $4.2 million in severance, outplacement and other costs.
“We wanted to make sure we did it in one fell swoop,” instead of increasing stress levels by dragging it out, Pertchik said.
The layoffs will save about $4.4 million in earning before interest, taxes, depreciation and amortization (EBITDA) this year but about $13.1 million beginning in 2021, said TA chief financial officer Peter Crage.
“While it’s always difficult on a personal level to undertake reductions in force, there’s a level of anticipation and excitement over the opportunity to drive meaningful change in such an established, historic, large and complex organization like TA,” said Perchik, a veteran business turnaround expert hired in December 2019.
“These changes have nothing to do with the current health and economic crisis and have everything to do with executing our turnaround strategy and driving toward long-term shareholder value by focusing on the methods and ways to improve the financial health and functioning of the organization,” he said.