The outlook for the restaurant industry improved in
June, as the National Restaurant Association’s comprehensive index of
restaurant activity edged up 0.2 percent from its May level. The
Association’s Restaurant Performance Index, a monthly composite index
that tracks the health of and outlook for the U.S. restaurant industry,
stood at 101.8 in June, its 36th consecutive month above 100. Index
values above 100 represent expansion in the Association’s composite
index of eight key industry indicators.

“The June increase in the Restaurant Performance Index was driven by
broad-based gains in the current situation indicators,” said Hudson
Riehle, senior vice president of Research and Information Services for
the Association. “Each of the four current situation indicators posted
improvements in June, led by solid same-store sales and traffic
performances. In addition, operators overall remain optimistic about
sales and the economy, which bodes well for continued growth in the
second half of 2006.”

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. The Index consists of two components: the Current
Situation Index and the Expectations Index. Growth in the Restaurant Performance Index was fueled by a moderate
gain in the Current Situation Index in June.

The Current Situation
Index, which measures current trends in four industry indicators
(same-store sales, traffic, labor and capital expenditures), stood at
101.4 in June, up 0.4 percent from May and its strongest level in three
months.

Despite the challenges associated with rising energy prices, restaurant
operators reported positive same-store sales for the 35th consecutive
month. Fifty-three percent of restaurant operators reported a
same-store sales gain between June 2005 and June 2006, up from 49
percent of operators who registered a sales gain in May. Twenty-nine
percent of operators reported a same-store sales decline between June
2005 and June 2006, while 18 percent of operators reported no change in
sales.

Customer traffic also remained positive in June. Forty-six percent of
restaurant operators reported an increase in customer traffic between
June 2005 and June 2006, up from 40 percent of operators who reported
traffic gains in May. Thirty-one percent of operators reported traffic
declines in June, while 23 percent reported no change in customer
traffic.

Restaurant operators continued to report strong levels of capital
spending. Fifty-six percent of operators said they made a capital
expenditure for equipment, expansion or remodeling during the last three
months, the fifth consecutive month above 50 percent.

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 102.2 in June,
unchanged from its May level.

Although a majority of restaurant operators expect sales to be stronger
in six months, the level of optimism slipped in recent months.
Fifty-three percent of restaurant operators expect their sales volume in
six months to be higher than it was during the same period in the
previous year, the lowest level in seven months. However, just 13
percent of restaurant operators expect their sales in six months to be
lower than it was during the same period in the previous year.

Restaurant operators are cautiously optimistic about the direction of
the overall economy. Thirty-one percent of operators expect economic
conditions to improve in six months, up slightly from 30 percent last
month. Seventeen percent of operators said they expect economic
conditions to worsen in six months, while 52 percent expect economic
conditions to remain about the same.

Although a solid proportion of restaurant operators are planning for
new capital spending in the coming months, the levels are down from
recent months. Fifty-seven percent of restaurant operators plan to make
a capital expenditure for equipment, expansion or remodeling in the next
six months, down from 65 percent who reported similarly in February.