Restaurant Performance Index
In the last part of this series, we covered the Restaurant Performance Index. It’s a combination of two equally-weighted indices—the Current Situation Index and the Expectations Index.
As of August 2014, the Current Situation Index was 101.8. It increased 1.1%. This is a backward looking measure. It’s based on indicators’ past trends—same-store sales, traffic, capital expenditure, and labor. It has been at levels above 100 since March 2014.
The Expectations Index was 102.1. It increased 0.9%—compared to July 2014. This is a forward looking measure. It indicates the restaurant operators’ outlook of its indicator components—same-store sales, employees, capital expenditures, and business condition.
The indices indicate an expansionary period for the restaurants. The Current Situation Index states the industry’s current health. Restaurants advanced their operations by adding more sales, labor, and stores by incurring capital expenditures.
However, despite the positive uptrend, casual dining restaurant stocks—like Darden Restaurants (DRI), Bloomin’ Brands (BLMN), Brinker International (EAT), and DineEquity (or DIN)—have faced a slowdown. The slowdown was due to a shift in customer preferences and newer concepts—like fast-casual restaurant Chipotle Mexican Grill (CMG).
To take advantage of several restaurant concepts, you could consider the Consumer Discretionary Select Sector SPDR (XLY). In the next part of the series, we’ll discuss the key indicators that make up the two indices.