Restaurants Improve in July

 |  Includes: BJRI, COSI, CPKI, DAVE, RRGB
by: Zacks Investment Research

A recent survey by the National Restaurant Association revealed a marginal improvement in the Restaurant Performance Index (RPI) for the month of July 2009. The index rose 0.3% to 98.1 from June.

The index has remained below 100 for 21 consecutive months. An index of more than 100 would indicate that the restaurant industry is in an expansion phase, whereas below 100 would indicate that the industry is scaling back its development plans and is in contraction.

The Restaurant Performance Index, which measures the health and outlook for the U.S. Restaurant Industry, comprises the Current Situations Index and the Expectation Index.

The Current Situation Index, which measures comparable store sales, traffic count, labor costs and capital expenditures for the month being surveyed compared to the same month in the prior year increased 0.2% in July to 96.8.

The Expectations Index, which measures restaurant operators’ outlook on comparable sales, employees, capital expenditures and business environment, rose 0.5% to 99.4 in July from its June level.

The Current Situation Index remained below 100 for 23 consecutive months, due to contraction in the current situation indicators. Approximately 58% of restaurant operators reported same-store sales declines in July, which improved slightly from 61% reported in June. Moreover, 59% of operators reported a traffic decline in July compared to 60% reported in June.

The rise in the Expectations Index for July indicates improved restaurant outlook for sales growth. Approximately 31% of restaurant operators (up from 24% in June) now expect to have higher sales in 6 months compared to the same period in the last year. However, 33% of restaurant operators (flat compared to the month of June) now expect their sales volume to be lower in 6 months compared to the same period in the last year.

The restaurant industry in recent times has been facing the toughest challenge due to the ongoing economic turmoil, whose depth has yet to be felt. With rising unemployment and lower discretionary spending, we believe it will be too early to predict improvement in the restaurant industry, which is grappling with sluggish consumer demand.

Restaurants like Famous Dave’s of America Inc. (NASDAQ:DAVE), Cosi Inc. (NASDAQ:COSI), BJ’s Restaurants Inc. (NASDAQ:BJRI), California Pizza Kitchen Inc. (NASDAQ:CPKI) and Red Robin Gourmet Burgers Inc. (NASDAQ:RRGB) are experiencing declining same-store sales and traffic counts.