Industry News | July 31, 2012

Operators Optimistic About Sales Growth in Coming Months

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Bolstered by stronger same-store sales and customer traffic levels, the National Restaurant Association’s (NRA) Restaurant Performance Index (RPI) stood above 100 for the eighth consecutive month in June. 

The RPI—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry—stood at 101.4 in June, unchanged from May’s level. 

“The latest Restaurant Performance Index reflects improvements in each of the four current situation indicators in June,” says Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Restaurant operators reported positive same-store sales and customer traffic, while their capital spending activity advanced for the second consecutive month. 

“However, although the overall current operating environment remains positive, operators have definitely tempered their expectations for the future,” Each of the four expectations indicators softened in June, including restaurant operators’ least positive economic outlook in eight months. Still, market conditions are substantially better than two and three years ago,” Riehle says. 

The Restaurant Performance Index is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction for key industry indicators. The Index consists of two components: the Current Situation Index and the Expectations Index. 

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor, and capital expenditures), stood at 101.5 in June, up 0.7 percent from May and the strongest level in three months. 

In addition, the Current Situation Index stood above 100 for the eighth consecutive month, which signifies expansion in the current situation indicators. 

 Restaurant operators reported positive same-store sales for the 13th consecutive month in June. Sixty-one percent of restaurant operators reported a same-store sales gain between June 2011 and June 2012, unchanged from the proportion that reported a sales gain in May. Meanwhile, 24 percent of operators reported lower same-store sales in June, down from 28 percent in May.   

Restaurant operators reported stronger customer traffic levels in June. Fifty percent of restaurant operators reported higher customer traffic levels between June 2011 and June 2012, up from 42 percent who reported positive traffic in May. 

In comparison, 29 percent of operators reported lower customer traffic levels in June, down from 39 percent in May.

Restaurant operators reported an uptick in capital spending for the second consecutive month. Forty-eight percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the last three months, up slightly from 46 percent who reported similarly last month.

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures, and business conditions), stood at 101.3 in June, down 0.7 percent from May and the third consecutive monthly decline. 

Although June marked the tenth consecutive month that the Expectations Index stood above 100, it also represented the weakest level in seven months.      

Restaurant operators are generally optimistic that their sales levels will improve in the months ahead. Fifty percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up slightly from 48 percent who reported similarly last month. 

However, 13 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, the highest proportion in eight months.

While operators are reasonably optimistic about their sales prospects in the months ahead, they are decidedly less bullish about the direction of the overall economy. Only 28 percent of restaurant operators said they expect economic conditions to improve in six months, down from 36 percent last month. Meanwhile, 21 percent of operators said they expect economic conditions to worsen in the next six months, up from 19 percent last month. 

For the ninth consecutive month, restaurant operators reported positive expectations for staffing growth in the coming months. Eighteen percent of restaurant operators plan to increase staffing levels in six months (compared to the same period in the previous year), while 12 percent said they expect to reduce staffing levels in six months. 

A majority of restaurant operators continue to plan for capital spending in the months ahead. Fifty-one percent of restaurant operators plan to make a capital expenditure for equipment, expansion, or remodeling in the next six months, down slightly from 55 percent who reported similarly last month. 

The Restaurant Performance Index is based on the responses to the National Restaurant Association’s Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor, and capital expenditures.