The second quarter ended on a slow note, with lackluster same-store sales in June due in part to ailing dinner and weekend traffic. However, improvements in consumer spending trends bode well for the second half of the year, according to the latest NRN-MillerPulse report released Tuesday.
Restaurant same-store sales rose 0.8 percent in June, lower than the 1.9-percent increase recorded in May. Still, the second quarter ended on a better note than the first, with same-store sales rising 1.4 percent, compared with the 1-percent increase in the prior quarter.
As has been the case for some time, poor traffic was to blame, said Larry Miller, founder and chief executive of the monthly MillerPulse report.
Traffic fell 1.7 percent in June, the 19th consecutive month of negative trends, compared with a decline of 0.5 percent in May. Dinner and weekend business was particularly troubling, and guests appeared to order fewer alcoholic drinks and soft beverages.
“The relative weakness in dinner, weekends and beverages suggests a cautious consumer, not necessarily a cash-strapped one,” said Miller in the report. “Thus, sales could turn up on a dime, if sentiments were to improve.”
The good news, he said, is that consumer surveys indicate that could happen very soon.
Consumers said they plan to spend more in restaurants in July than they did in June, according to ChangeWave Research, a research firm that quantifies consumer spending trends.
In a ChangeWave survey, 15 percent of respondents said they plan to spend more on dining out in July, and 22 percent said they plan to spend less. In June, however, 13 percent said they planned to spend more, versus 23 percent who said they would spend less.
Miller noted that ChangeWave data is 65-percent correlated with restaurant sales, and precedes sales by three to six months.
Improvements in U.S. job growth and an uptick in The Conference Board’s Consumer Confidence Index in June over May also may inspire increased restaurant spending.
In addition, restaurants face easier year-over-year comparisons in the second half of the year, he noted.
“Stronger spending plans and somewhat easier sales comparisons may be the right medicine for this multi-year sales ailment,” said Miller. “If the current trend holds, sales would be up 2.2 percent in the back half of 2014, versus up 1.2 percent in the first half.”
Same-store sales rose 1.3 percent for quick-service restaurants in June, which outperformed sales in the casual-dining sector, which fell 0.1 percent, and fine dining, which rose 1 percent.
Traffic decreased across the board, except at fine-dining restaurants, which recorded a modest traffic increase of 0.7 percent.
Operators, however, continue to remain optimistic, with 45 percent saying they expect better sales in July, while only 25 percent expect worse.
Looking at the first week in July, however, Miller noted that sales were in line with June, rising 0.7 percent.
A net 7 percent of operators said they expect their margins to improve over the next six months, meaning 30 percent of those surveyed expect better margins, while 23 percent expect worse.
Restaurant margins stood at 15.8 percent in June, an increase of 20 basis points from the prior month.
Operators said they expect commodity inflation of about 2.5 percent over the next six months, an improvement over the 2.8-percent inflation projected in May.
Despite the weaker traffic, Miller wrote that restaurant operators still plan to increase prices over the next six months an average of 1.8 percent, mainly on strong-selling items.
MillerPulse results are based on a monthly survey of operators averaging more than $40 billion in industry sales, representing all regions of the country and across the fast-food, casual-dining, fine-dining and fast-casual segments. Restaurant chains and operators interested in participating in the MillerPulse survey for additional results and insight can register at www.millerpulse.com.
This story has been revised to reflect the following correction:
Correction: July 16, 2014 Due to an editing error, an earlier version of the same-store sales and traffic chart in this story incorrectly stated the June traffic result. June restaurant traffic fell 1.7 percent.
Contact Lisa Jennings at email@example.com.
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