NEW YORK —Consumers look like they’re getting hungry again for restaurant meals.
Even as the operating environment remains incredibly tough, new data on consumer confidence, consumers’ spending plans and restaurant sales trends have some observers thinking the foodservice industry already has suffered the worst of this recession’s hits. —Consumers look like they’re getting hungry again for restaurant meals.
“While it would be premature to suggest that a full economic recovery is imminent,” said Benihana chief executive Richard C. Stockinger, “we believe that overall guest counts are beginning to stabilize, and are more hopeful that trends could improve from these levels as we move into [the company’s April-beginning fiscal 2010].” —Consumers look like they’re getting hungry again for restaurant meals.
Stockinger’s optimism surfaced even after Benihana Inc., the operator or franchisor of 116 restaurants under three brands, posted a systemwide same-store sales decline of 10.4 percent for its March-ended fourth quarter. —Consumers look like they’re getting hungry again for restaurant meals.
Officials at Brinker International, California Pizza Kitchen and Ruby Tuesday in early April each indicated that sales trends at their chains have improved from the weak winter months and that instituted cost controls have started to pay dividends. California Pizza Kitchen and Ruby Tuesday even upped their earnings outlooks for their first quarter and fiscal year, respectively. —Consumers look like they’re getting hungry again for restaurant meals.
Improved data on the industry’s monthly sales and a minor uptick in consumer confidence levels in March, as reported by both the University of Michigan and The Conference Board, also have convinced some that the end of weak consumer spending, which the industry has faced for more than a year, could be near. The improvements were greater than the market expected, according to reports, prompting many pundits to predict that the record-low levels of consumer confidence logged in January and February could be over. —Consumers look like they’re getting hungry again for restaurant meals.
The stock market’s rally in the past month suggests that investors are looking for the beginning of a turnaround as well. Through April 9, the last trading day before press time, the Nation’s Restaurant News Stock Index rose to its highest point of the year, save for a few days in early January when the market is typically trading positively on post-New Year’s Eve bliss. On April 9, the market-cap weighted index of all public restaurant companies closed at 994.27, a 2-percent increase for the week, and the fifth consecutive week of NRN Index jumps. The closing value was the highest since Jan. 6. —Consumers look like they’re getting hungry again for restaurant meals.
Further fueling speculation that the environment is improving is new data from Atlanta-based RBC Capital Markets, showing that fewer consumers plan to cut back on restaurant spending in the next three months and a larger number of consumers than in previous months actually plan to spend more at restaurants. —Consumers look like they’re getting hungry again for restaurant meals.
In RBC’s April survey of 2,717 consumers, 44 percent of the respondents said they were planning to spend less at restaurants during the next 90 days, an improvement from the 50-percent reading in March. The percentage of consumers that said they were planning to spend more at restaurants rose to 6 percent in April, from 5 percent in March. —Consumers look like they’re getting hungry again for restaurant meals.
“The stabilization [and] improvement in confidence and restaurant-spending intentions support the notion we’re nearing an inflection point in consumer spending,” said RBC analyst Larry Miller. “We are seeing an improvement in spending plans over the last several months after a year of declining spending intentions.” —Consumers look like they’re getting hungry again for restaurant meals.
Even more, when the economy does improve, 44 percent of the respondents said they would spend more money on dining out and everyday entertainment, second only to 48 percent of the respondents who said they would spend more on travel. Meanwhile, 36 percent said they would increase spending on household repairs or improvements, 30 percent said they would spend more on both consumer electronics and durable goods for homes, and 22 percent said they would spend more on automobiles. —Consumers look like they’re getting hungry again for restaurant meals.
The investment bank’s April survey also showed the first year-over-year improvement since April 2007 in the CASH Consumer Confidence Index, which measures consumer viewpoints on the current economy, expectations for the future, and feelings on job security and their personal financial situations. The index rose to 38.3 in April, up from 8.2 in March, and was driven by consumers’ expectations that the economy will improve during the next six months. Consumers had registered pessimistic responses related to the future economic outlook almost each month since January 2008. The CASH index had declined steadily nearly each month since September 2007, when it registered above 70, and it bottomed out at nearly 0 in February. —Consumers look like they’re getting hungry again for restaurant meals.
The survey, released this month, is the latest data suggesting happier times ahead. —Consumers look like they’re getting hungry again for restaurant meals.
“Various sales metrics suggest that the December 2008-January 2009 time frame may have been the bottom in terms of sales and traffic declines for the restaurant industry in the current economic downturn,” analyst Jeff Omohundro at Wachovia Capital Markets LLC said in a research note. —Consumers look like they’re getting hungry again for restaurant meals.
He noted that Census Bureau and Bureau of Labor Statistics data show that real sales for restaurants may have bottomed out when they fell 4.7 percent in December 2008. They have since improved to a negative-2-percent clip in January and February. —Consumers look like they’re getting hungry again for restaurant meals.
In addition, Omohundro noted that CREST survey data from consumer and market research firm The NPD Group show that monthly traffic trends point to January 2009 as a potential bottom for the full-service sector specifically, when traffic fell 6 percent. A rebound to negative traffic of about 4 percent occurred in February. —Consumers look like they’re getting hungry again for restaurant meals.
Finally, Wachovia’s own quarterly same-store sales data for companies under its coverage suggest that the fourth quarter and the just-ended first quarter could be the potential bottom, Omohundro said. —Consumers look like they’re getting hungry again for restaurant meals.
Unemployment figures, which rose to 8.5 percent in March, remain a thorn in the restaurant industry’s budding turnaround. Some observers predict the unemployment figures still could reach 10 percent or higher. Still, The Conference Board suggested in April that “the most intense stage of job losses may be behind us.” Its Employment Trends Index, which tallies eight labor market indicators, fell in March, like it has for the past 20 months, but not as steeply as it had in the previous four months. —Consumers look like they’re getting hungry again for restaurant meals.
As public restaurant companies head into first-quarter earnings season, set to begin in late April, some analysts are taking these nuggets of good news into account and revising their projections upward, especially when compared to the doldrums of last year’s fourth quarter. —Consumers look like they’re getting hungry again for restaurant meals.
“Based on recent more favorable sales trends and the potential for better margins, we believe first-quarter earnings per share could be at least in line with expectations, if not slightly better,” analyst Bob Derrington at Morgan Keegan & Co said in a note. —Consumers look like they’re getting hungry again for restaurant meals.
Jeff Farmer, an analyst at Jefferies & Co., noted that restaurants should be able to hold onto the recent improvement in the average 2009 price-to-earnings ratio, which jumped to 15 in late March, from 11 earlier in the month. —Consumers look like they’re getting hungry again for restaurant meals.
“With the steady drumbeat of good news out of the financial sector and evidence that retail sales potentially began a…recovery in February and March…it will likely take results [in line with expectations] at a very minimum to hold onto the expansion,” he said. —Consumers look like they’re getting hungry again for restaurant meals.
