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Restaurant Operators Serve Up Uncertainty

6 September 2012 in Trading Ideas

Growth in the country’s restaurant business has taken place all year, but operators aren’t exactly optimistic about that continuing for much longer.

Last Friday, we received news that the National Restaurant Association’s Restaurant Performance Index (RPI), which tracks the health and expectations for the US restaurant industry, fell 1.1% in July from a month earlier to its lowest mark since last October.

The new level – 100.2 – does signify continued expansion (100 being the expansion/contraction line), but softer customer traffic and an increasingly glum outlook pushed the index lower.

The restaurant trade group reported that only 22% of restaurant operators expect economic conditions to improve in the next six months. That percentage was the lowest level in 10 months.

Interestingly, restaurant operators seem relatively more optimistic about their own business than the state of the national economy. The July survey showed 42% of restaurant operators expected to have higher sales in six months (compared with a year ago), although that percentage dropped from 50% a month earlier. Meanwhile, 15% of restaurant operators expect their sales volume in six months to be lower than year-ago levels – that’s up from 13% last month.

Despite this uneasiness, the July survey showed that restaurant operators’ capital spending outlook is still relatively firm. Forty-nine percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months – that’s down just slightly from 51% who reported similarly last month.

Operators did report overall positive same-store sales growth for the 14th consecutive month, but those results were softer than what has been seen in recent months. Fifty-three percent of restaurant operators posted a same-store sales gain in July compared with a year earlier, but that was down from the 61% who reported similar gains in June.

And while sales remained up, restaurant operators said customer traffic levels fell overall. Only 35% of operators said traffic was higher in July from a year earlier – that was down from 50% positive traffic in June. Meanwhile, 46% of operators said traffic declined, up from 29% in June.