NEW YORK Despite choppy results for the casual-dining segment in February overall, positive sales trends were reported for the latter two weeks of the month and analysts are upgrading future outlooks for key brands.
Major restaurant companies like Brinker International Inc., Darden Restaurants Inc. and Ruby Tuesday Inc. also have started to cite improved sales and traffic trends, leading some to question whether this may be the long-awaited turnaround in casual dining.
“Casual-dining sales have proved to be a relatively good predictive indicator of directional trends in overall retail sales,” securities analyst Sharon Zackfia of William Blair & Co. said in a statement, “which bodes well for a further acceleration in consumer spending in the first half of 2010.”
According to Zackfia, restaurant stocks’ 2010 rally accelerated in February, rising about 10 percent during the month, excluding McDonald’s, versus an S&P 500 increase of about 3 percent. All restaurant subsectors have outperformed the S&P 500 thus far this year, Zackfia’s research shows, led by casual-dining and fast-casual stocks with year-to-date gains of roughly 30 percent and 20 percent, respectively.
Malcolm Knapp, president of New York-based consulting firm Malcolm M. Knapp Inc., said that according to his Knapp-Track index, the latter two weeks of February showed positive same-store sales results at casual-dining chains and the third week was positive on guest counts.
This is particularly significant, Knapp said, because January and February of last year were the two strongest month of 2009, so the toughest comparisons are behind the segment, he said.
The Knapp-Track index, a monthly survey of sales and guest counts among 54 casual-dining concepts across the country, fell 3.2 percent overall in February, compared with a decline of 3.0 percent in January. Guest counts fell 3.9 percent in February, compared with a decline of 3.1 percent the previous month. February did include Super Bowl weekend and severe winter weather in many parts of the country.
The casual-dining segment is on track to see same-store sales averages turn positive in the third quarter this year, as many have predicted, though Knapp said that will depend on the job market and whether unemployment rates drop.
The current good news for casual dining is that families earning $70,000 or above -- a target demographic for the restaurant segment -- make up about 28.5 percent of U.S. households and account for about 50 percent of food eaten away from home. They are beginning to spend again. Knapp noted that demographic is less affected by job loss and is likely to come out of the recession sooner. High-end steakhouses, for example, are already showing improved results from earlier, Knapp said.
Another positive point for casual dining was noticed by some analysts, who pointed to Knapp-Track’s evidence that same-store sales results were tracking 70 basis points better than guest count results, indicating the diminishing impact from discounting.
“This continues to suggest that consumers may need less incentive to return to restaurants,” wrote Brad Ludington of KeyBanc Capital Markets.
Some casual-dining brands already are indeed moving away from discounting.
Orlando, Fla.-based Darden Restaurants Inc. last week said they would be using price-driven promotions more judiciously, and Dallas-based Chili’s Grill & Bar earlier this year ended its “3 for $20” promotion, focusing instead on a revamped and higher quality menu.
Knapp said consumers will continue to see value as very important, but restaurant discounting will be “less excessive.”
“Discounting was rampant and excessive last year,” he said. “Some people panicked and threw out pretty low price points and many may have damaged their brands.”
Others, like The Cheesecake Factory, California Pizza Kitchen and Houlihan’s avoided deep discounts, instead expanding their menu to include a lower-priced small plates and snacks category. Both The Cheesecake Factory and P.F. Chang’s China Bistro also are rolling out happy hour menus with lower-priced drink and dining offers.
Mark Kalinowski, an analyst with Janney Montgomery Scott in New York, last week upgraded his outlook for The Cheesecake Factory, citing sources who say the Calabasas Hills, Calif.-based casual-dining company is enjoying a great first quarter. The company is scheduled to release latest-quarter results April 22.
In part based on the Knapp-Track indicators of improved sales and traffic in February, Kalinowski bumped same-store sales projections for the brand from 0.3 percent to 2.0 percent.
Contact Lisa Jennings at [email protected].
