Casual-dining restaurants saw their same-store sales decline by an estimated 1.1 percent in February, compared with a 1.7-percent dip in the same month last year, which was the fourth-worst month of 2007. In addition to that 0.6-percentage point improvement in same-store sales, same-store guest counts for casual-dining places fell by 2.9 percent in February, versus a 4.1-percent decline in covers in last year’s second month.
The estimates for February 2008 are based on weekly data. A final accounting will depend in large part on shifts in results for individual concepts based on the specific weeks included in their accounting month, as well as how they account for the extra day of leap year.
Same-store sales in February were positive for only one week and negative for the other three. However, all four weeks had negative guest counts. The spread between the best week of the four versus the worst week was 4.8 percentage points, with the best week being the third week and the worst being the second, due to a calendar shift for some concepts for Valentine’s Day. Excluding the two weeks involved with the Valentine’s Day shift, the spread between the remaining two weeks was flat at 1.1 percentage points.
There have been questions about the impact of home foreclosures and subprime mortgages on comparable-restaurant sales for the U.S. casual-dining sector. Its same-store sales fell 0.7 percent in January. But if one excludes California and Florida and the three TV markets with the great housing pressures—Detroit, Las Vegas and Phoenix—the same-store sales increase in January was 0.5 percent, a 1.2-percentage-point swing. Comparable guest counts went from a decline of 3 percent to a decline of 1.9 percent, an improvement of 1.1 percentage points. The excluded two states and three cities represent roughly 25 percent of total U.S. sales, and their collective same-store sales decrease in January was 4 percent, with a comparable guest count decline of 6.5 percent.
The estimated comparable-restaurant sales decline of 1.1 percent in January was below the weighted average same-store retail industry performance at 2.6 percent, as measured by Bear Stearns’ retail analysts.
The pattern of the period from April 2003 through February 2008 was that Bear Stearns’ retail same-store results outperformed the casual-dining sector, with the exception of November 2004, January 2005, April 2005, May 2005, January 2006, March 2006 and April 2007.
In February 2008, drug stores led comparable-store sales with a gain of 3.5 percent, followed by discounters at 3.3 percent and the softlines category at 1.3 percent, while declines were recorded in home furnishings, 0.4 percent, and department stores, 4.5 percent. Off-price apparel led in the soft-lines merchandise category with comparable-sales gains of 3.3 percent, followed by junior apparel at 1.6 percent, with apparel stores last, with a decline of 0.8 percent. Higher-demographic discounters and drug stores were the best retail performers in February 2008.
More-affluent customers are emotionally but not particularly fiscally affected by adjustable-rate mortgage resets or gasoline, food and prescription drug price increases. They are fiscally affected by realized and unrealized losses in their portfolios, both personal and 401(k), and not getting bonuses comparable to last year’s, and they’re seeing reduced commission income.
In the department store category, Saks Fifth Avenue had the high result of 3.4 percent versus a year-earlier result of 24.7 percent. Nordstrom was down 5.8 percent, versus 9.1 percent a year earlier, and Neiman Marcus was down 7.4 percent, versus 6.7 percent a year earlier. In the discount store category, Costco had a 7-percent gain, Sam’s Club was up 5.2 percent, Wal-Mart Stores were up 2.5 percent, and Target was up a mere 0.5 percent, versus 5.7 percent in the prior year.
Value propositions for the majority of casual-dining concepts will continue to be very important as inflation in general, especially increased costs for energy, education, and medical care and drugs put substantial pressure on households earning less than $50,000.
The third and final estimated increase in the real gross domestic product for the first quarter was just 0.6 percent, the slowest rate since the fourth quarter of 2002. However, the third and final estimate of the second quarter’s real GDP was a much stronger 3.8 percent. The third and final estimate for the third quarter was an even stronger 4.9 percent. The second preliminary estimate for fourth-quarter GDP was 0.6 percent.
The Manufacturing Index, as measured by the Institute for Supply Management, was 48.3 in February, down 2.4 index points from 50.7 in January. An index below 50.0 indicates a contraction of manufacturing activity.
The average Manufacturing Index for the past 12 months was 51.0. The only good news in manufacturing was that new export orders were still expanding with a February index number of 56.0, down 2.5 index points from 58.5 in January. As of February, export orders had expanded for 63 months.
The Non-Manufacturing Index of the Institute for Supply Management was up a strong 4.7 index points with an index of 49.3 in February, versus 44.6 in January. The average Non-Manufacturing Business Activity Index for the prior 12 months was 54.4.
The annual benchmarking revisions announced in January showed an adjusted gain of nearly 1.14 million in seasonally adjusted employment, or 0.83 percent. By comparison, employment in 1982 fell 1.77 percent and in 1991 employment fell 1.01 percent. The unemployment rate in 1981 was 10.8 percent, and the unemployment rate in 1991 was 7.3 percent.
For additional perspective on annual unadjusted employment, consider that the employment percentage change in 2000 was 2.16 percent while in 2001 it was 0.03 percent; in 2002 it was down 1.13 percent; in 2003 it was 0.26 percent; in 2004 it was up 1.1 percent; in 2005 it was 1.73 percent; in 2006 it was 1.78 percent and in 2007 it was 1.13 percent.
The decreasingly acceptable news was that from February 2007 through February 2008, the seasonally adjusted number of payroll jobs increased by a revised 860,000, or 0.63 percent.
There are sharp differences in unemployment rates by race. The unemployment rate in February 2008 was 4.3 percent for white people, 6.2 percent for Hispanics and Latinos, and 8.3 percent for African-Americans. The white unemployment rate was down 0.1 percentage points from January 2008; the Hispanic unemployment rate was down 0.1 percentage points from January 2008, while the unemployment rate for African-Americans decreased 0.9 percentage points from January 2008.
The unemployment rate in February 2008 was down 0.1 percentage points from January 2008 at 4.8 percent. The unemployment rate is down because there was an increase of 644,000 people who had dropped out of the labor force, which caused a net drop in the civilian labor force of 450,000 persons.
On Jan. 14, 2008, gasoline prices were $3.068 per gallon, up just 7 cents from Dec. 3, 2007. On Feb. 11, 2008, gasoline prices were $2.960, down 10.8 cents from Jan. 14. On March 17, 2008, gasoline prices were at an all-time high at $3.284, up 32.4 cents or 10.95 percent from Feb. 11, 2008. The prior high gasoline price on May 21, 2007, was $3.218.
From the 2007 low in Jan. 29 at $2.165 per gallon to March 17, 2008, gasoline is up $1.119 a gallon, or 51.7 percent. From a year ago, gasoline is up 70.7 cents per gallon, or 27.4 percent.
Crude oil prices hit a 20-month low of $49.90 a barrel on Jan. 18, 2007, and have since rebounded 124.05 percent to $111.80 a barrel in intraday trading on March 17, 2008, the highest price since trading started in 1983. The price per barrel settled at an all-time high of $110.33 in March, an increase of 121.10 percent from the Jan. 18, 2007, low of $49.90 a barrel. Oil has fallen 7.7 percent in the week of March 17-20 to $101.84 a barrel on March 20, 2008.
U.S. fuel consumption in the past four weeks was down 3.2 percent from a comparable period a year ago. During the same period, gasoline demand fell 1 percent.
The consumer emotional climate is still not good and continues to hurt casual-dining sales. In addition to the political woes, the sharply declining dollar, the second phase of a credit crunch and increasing home foreclosures are depressing consumers and lowering their confidence, particularly in the future.
The congressional and Bush administration response to voters economic concerns was to pass a short-term economic-stimulus plan. The plan stipulates that personal tax rebates will come to $106.7 billion and business tax incentives will be $45 billion. The current dollar numbers and number of individuals receiving cash payments are higher than the $38 billion in 2001 and $12 billion in 2003.
The payment of refunds for those individuals who have elected to receive payment through electronic funds transfer or direct deposit will start by May 2 with all direct deposits made within two weeks.
Starting by May 16, the remainder of the payments will go out as checks sent via mail. The IRS expects to make 34 million payments in the first 3 weeks of May. Paper checks can be processed at about a rate of 9 million checks per week. It is anticipated that a total of 130 million stimulus payments will be sent.
The stimulus payments worked well for the restaurant industry in both 2001 and 2003. There was little pick-up the first week the checks were sent out, but sales picked up by the second week and continued after the last checks were sent. People did not spend the money all at once; they spread out the spending. The magnitude of cash in 2008 should result in an increase of 2 percent to 4 percent in same-store sales over the level just before the money arrives.
It seems that part of the reason that comparable casual-dining restaurant sales have been in a trading range of a negative 0.7 percent to a negative 1.3 percent for December—adjusted for weather and shopping pattern shifts—as well as January and February was that consumers cut back on purchases of cars and other goods. For example, car and light-truck unit sales were down 2.4 percent in 2007. J.D. Power & Associates’ forecast for 2008 is down 7.1 percent, which would make 2008 the year of the lowest unit-sales level since 1995.
January 2008 final same-store sales were down 0.7 percent. That result was 1.6 percentage points better than the below-trend January 2007—the second-worst month of 2007, with same-store sales down 2.3 percent. January 2008’s comparable-restaurant guest counts were down 3 percent. January 2007 same-restaurant guest counts fell 4.8 percent. Year-to-date comparable sales in January 2008 were down 0.7 percent, versus a negative 2.3 percent for January 2007. Year-to-date comparable guest counts in January 2008 were down 3 percent, versus being down 4.8 percent for January 2007. Year to date all-store sales through January 2008 were up 4.3 percent, compared with a 3.5-percent gain for January 2007. Year-to-date all-store guest counts through January 2008 rose 2 percent, versus a 1.1-percent increase for January 2007.
The Consumer Confidence Index decreased spectacularly in February 2008 by 12.3 index points to 75.0. The February Consumer Confidence is, with the exception of the start of the Iraq War in 2003, now at the lowest level since November 1993 when it was 71.9 index points. The February 2008 Index is 36.2 index points below February 2007. The Present Situation fell the most at 13.7 index points to 100.6 index points, which is 36.5 index points lower than February 2007. The Expectations Index (how people think the economy will perform in August 2008) fell a sharp 11.4 index points to 57.9 index points. This is a decrease of 35.9 index points from February 2007. Expectations in February 2007 were 43.3 index points below Present Situation. By February 2008, Present Situation still exceeded Expectations by a robust 43.0 index points.
The unemployment rate in February 2008 was 4.8 percent, down 0.1 percentage points from January 2008. The unemployment rate has been between 4.5 percent and 5.5 percent in each month since July 2004 with the exception of the March 2007 unemployment rate of 4.4 percent, which matched the May 2001 unemployment low. The total number of people working in nonfarm jobs was 137,993,000. There was an initial decrease in February 2008 of 63,000 nonfarm jobs from January 2008. This is a two-month decline after 51 months of increases in jobs, starting in September 2003. The payroll numbers are subject to large revisions for two months after the initial estimate. The initial jobs decrease in January 2008 of 17,000 jobs was revised down by 5,000 jobs to a decrease of 22,000 jobs.
In February 2008, nearly 1.3 million people had been unemployed for 27 weeks or more, 17.5 percent of the unemployment total. In February 2007 the percentage had been 17.6 percent.
This persistence in long-term unemployment is still a negative pressure on consumer confidence.
In February 2008, manufacturing jobs decreased by 52,000 jobs from January 2008. In the past 12 months seasonally adjusted manufacturing employment has decreased by 299,000 jobs, or 2.1 percent. In February 2008, construction industry employment was down 39,000 jobs from January 2008 and down 222,000 jobs, or 2.9 percent, from February 2007. Employment in the service-providing sector—which includes retail trade, services and government, among other sectors—increased by 26,000 jobs.
The service-providing sector is up 1.35 million jobs or 1.18 percent in the past 12 months.
Food services and drinking places employment increased 19,900 jobs in February. In the past 12 months, food services and drinking places employment increased 282,900 jobs, or 3 percent. Government jobs increased by 38,200 jobs.
Seasonally adjusted hourly earnings were up 5 cents in February 2008 to $17.80. Seasonally adjusted hourly earnings rose 3.67 percent from February 2007. Seasonally adjusted average weekly earnings were up $1.68 in February 2008 to $599.86.
Seasonally adjusted average weekly earnings rose 3.67 percent from February 2007.
Total private nonfarm weekly hours worked in February 2008 at 33.7 hours are unchanged from January 2008. Manufacturing average weekly hours worked in February 2008 at 41.1 hours are unchanged from January 2008. Factory overtime at 4 hours is unchanged from January 2008.
In January, five of 11 Knapp-Track regions—Texas, West North Central, Pacific Northwest, Middle Atlantic and East North Central—had restaurant sales gains. Six of 11 regions had negative same-store sales. Nine regions had better same-store sales in January 2008 than in December 2007. Two of 11 regions, Mountain and California, had worse same-store sales in January 2008 than in December 2007.
The spread between the high and low regions for same-store sales in January 2008 was 7.7 percentage points, versus the 8.7 percentage points of December 2007.
The best-performing region was Texas followed by West North Central, Pacific Northwest, Middle Atlantic, East North Central, and East and part of West South Central. These 6 regions had better or equal same-store sales than the national average of negative 0.7 percent in January. The worst-performing region was Florida followed by California, South Atlantic, Mountain and, finally, New England.
Year to date, the highest region for same-store sales was Texas, and the lowest region was Florida. The spread between the two year-to-date regions was 7.7 percentage points. The median-concept same-store sales change was a negative 1.1 percent.
In January, the spread between comparable-restaurant sales and guest counts was a negative 2.3 percentage points. The national average for comparable-restaurant guest counts in January was a decline of 3 percent. The best-performing region was Texas. The worst-performing region was Florida. Three regions—Texas, West North Central and Pacific Northwest—had positive guest counts. Eight regions had negative guest counts. The spread between the best and worst performing region was a negative 6.4 percentage points.
All-restaurant sales in January were up 4.3 percent. All 11 regions were positive. The spread between all-restaurant and comparable-restaurant sales was a negative 5.0 percentage points.
All-restaurant guest counts in January were up 2 percent. Eight regions were positive. Three regions—California, South Atlantic and Florida—were negative. The spread between all-restaurant and comparable-restaurant guest count gains was a negative 5.0 percentage points.