In the last part of the series, we learned the current situation of the restaurant industry’s same-store sales in the United States according to a survey collected and reported by the NRA (National Restaurant Association). In this part, we’ll cover the health of capital expenditure and expectations for the next six months on the same.
The Current Situation Index for the restaurant industry’s capital expenditure in September 2014 was 101.3, which increased from 99.8 month-over-month. In September, this index dropped below 100 levels for the first time since the past six consecutive months starting in April 2014.
Restaurants make capital expenditures for opening new stores, as we learned in the Yum! Brands (YUM) series. They also make capital expenditures for purchasing new equipment, as we learned in the Brinker International (EAT) series, and for remodeling or reimaging existing restaurants, as we learned in the Burger King (BKW) and McDonald’s (MCD) series.
According to the NRA, 57% of operators incurred capital expenditures over the past three months, compared to 49% as reported in the month of September. An increase in capital expenditure is also positive for the ETF Consumer Discretionary Select Sector SPDR (XLY).
The six-month outlook for capital expenditure plans as of October 2014 was 101.8, which has been above 100 levels for the past 12 months.
Given the overall indicators discussed above, the restaurant industry is on an uptrend. Restaurant operators have experienced strong same-store sales. Traffic, which is one of the key indicators in the Current Situation Index, was 103.9 in October, up from 100.7 in September.
Expansion decision is based on several indicators. One is how restaurant operators feel about business conditions. A component of the Expectations Index is expected business conditions, which measures this sentiment. We’ll discuss it in the next part of this series.