Current Situation Index versus Expectations Index
In the last part of this series we covered the Restaurant Performance Index, or RPI. It’s a composite of two equally-weighted indices: the Current Situation Index and the Expectations Index.
In December 2014, the Current Situation Index was 102.9. It increased from 101.4 in October. This is a backward-looking measure. It’s based on its components’ past trends—same-store sales, traffic, capital expenditures, and labor. It has been above 100 since March 2014.
The Expectations Index was 102.9. It increased month-over-month from 102.8 in November. This is a forward-looking measure. It indicates the restaurant operators’ outlook for the next six months for its indicator components—same-store sales, employees, capital expenditures, and business conditions.
Takeaways for the restaurant industry
Both indices indicate an expansionary period for the restaurants. The Current Situation Index indicates the current health of the industry. Restaurants advanced their operations by adding more sales, labor, and stores by incurring capital expenditures.
Despite this positive uptrend, casual dining restaurant stocks—like Darden Restaurants (DRI), Bloomin’ Brands (BLMN), Brinker International (EAT), and DineEquity (DIN)—faced a slowdown 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 may consider the Consumer Discretionary Select Sector SPDR (XLY). XLY holds 37% of the retail portfolio.
In the next part of this series, we’ll look deeper into the key indicators that make up the two indices mentioned above.