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Tickers in this Article: DRI, EAT, RT, CMG
The most recent report on conditions in the restaurant industry shows that the nearly two-year-old contraction in activity is continuing, coupled with greater optimism for a future recovery by industry participants. Only time will tell if this optimism is justified.

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Every month, the National Restaurant Association releases an index of restaurant activity called the Restaurant Performance Index (RPI). The index level for August 2009 was reported at 97.9, a decline of 0.2% from July, and the 22nd consecutive month the RPI was below 100. A reading below 100 indicates a contraction in activity for the industry.

What Is The RPI?
The RPI did send conflicting signals. The index is the aggregate of two parts - the Current Situation Index and the Expectations Index. The Current Situation Index, which is based on same store sales, traffic, labor and capital expenditures, came in at 96 for the month. It has now been two full years since the Current Situation Index was above 100.

The Expectations Index, which measures the six-month outlook by restaurant operators, was reported at 99.5. The Expectation Index survey asks operators to base their outlook on four items: same store sales, employees, capital expenditures and business conditions.

This index has flipped around since 2009 began. In the January 2009 survey, only 17% of restaurant operators expected better conditions in six months, while 41% expected worse conditions. The August survey showed 34% expecting better conditions and only 19% expecting worse conditions.

Some operators are positioning for the recovery, as the August survey has the restaurant capital expenditures expectation indicator rise to 99.0 from 98.4 in July.

The Numbers Don't Lie
The overall RPI below 100 is reflected in the results of several publicly-traded restaurant companies. Darden Restaurants (NYSE:DRI) saw a decline in same store sales in all five of its brands in the quarter ending August 30, 2009.

Brinker International, Inc. (NYSE:EAT) saw an overall decline in same store sales of 9% in its fourth fiscal quarter ending June 24, 2009. The full fiscal year was a little better but still showed a decline of 5.6%.

Clearly some investors are taking an interest in the group. Ruby Tuesday (NYSE:RT) issued 11.5 million shares of common stock in July, and will use the proceeds to pay down debt. The company raised $73.2 million in net proceeds in the offering.

Some restaurant chains are not seeing much of an impact during the recession. Chipotle Mexican Grill (NYSE:CMG) plans on opening as many as 130 new locations in 2009.

The Bottom Line
Americans are saving at a higher rate than before the recession and have not returned to the extravagant ways that powered consumer spending. This may indicate that spending on eating out may be one of the last luxuries to resume once the economy starts to expand. (For additional reading, check our Sinking Your Teeth Into Restaurant Stocks.)

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