Included in our TXRH Black Book presentation tomorrow will be an industry update. We will be looking at the latest data on industry sales trends, inflation data, and consumer expectations. In addition, we will be examining some alternative data sets on traffic trends in some of TXRH's essential states. Also, we will break down June sales trends by subsector and daypart and what it means for industry sales for 2H20.
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REOPENING IS NOW A NEGATIVE
TXRH has significant exposure to states that reopened early, allowing sales to recover faster than others in the industry. As DRI noted on its call, LongHorn is doing well in Atlanta and Cincinnati. Between Ohio and Georgia, TXRH has 13.8% of its restaurants. Add to that the troubles in TX, which account for another 13.4% of TXRH restaurants, we are at 27% of the stores in states slowing reopening. Looking at RT. Live, spell more trouble for another 25% of the company restaurants. The value of Rt ( is a crucial measure of how fast the virus is growing. Rt is the average number of people who become infected by an infectious person. If Rt is above 1.0, the infection will spread quickly. When Rt is below 1.0, the virus will stop spreading, theoretically. More than 50% of TXRH locations are in states that have an Rt above 1.0. This factor is harmful to the entire casual dining industry.
INDUSTRY RECOVERY SLOWING & BEHAVIORAL CHANGES
We believe that a real recovery in the restaurant industry is more of a late 2021 and early 2022 story. The restaurant recovery has stagnated since early June. The COVID-19 outbreak has had numerous impacts on the grocery industry, some of which will have long-lasting implications for how we'll eat and shop. Shopping behavior from the number of trips, to what brands we buy, to price elasticity, has been redefined overnight. It has also changed how we'll eat. E-commerce penetration has been pushed forward by years. We will explore which trends will revert and which are more permanent and worth paying for. Driven by higher than consensus sales estimates, improving gross margins, and SG&A improving sequentially in the 2H, we are modeling upside in our EPS estimates for the grocers.
WHAT IS THE DINING ROOM CAPACITY?
DRI made it clear on its earnings call that once you're past 25% occupancy, the only thing that matters is the requirement of 6 feet of social distancing takes over. In every restaurant, there are always significant inefficiencies in seating capacity. So different layouts, even inside the same brand, will yield you different seating efficiencies under social distancing. This suggests that once you're past 25% occupancy, the 6-foot restriction on social distancing trumps any other limitation, and getting to 50% capacity may be challenging. The TXRH units with a significant number of "booth backs" are likely less than 6 feet, limiting capacity. As of May 11, 2020, the Company had reopened the dining rooms in approximately 160 of our company-owned restaurants under various limited capacity restrictions.
