uploads/2015/03/NRAs-Current-Situation-vs-Expectations-on-Capex-2015-03-251.jpg

Over 50% of Restaurant Operators Had Capital Expenditures in January

By

Updated

Capital expenditure

In the last part of this series, we learned about the restaurant industry’s current same-store sales in the US, according to a survey collected and reported by the NRA (National Restaurant Association). Now, we’ll cover the health of capital expenditure. We’ll also discuss the expectations for the next six months.

 

Article continues below advertisement

Interpretation

The Current Situation Index for the restaurant industry’s capital expenditure in January 2015 was 100.2. It declined month-over-month from 102. In September 2014, the index dropped below 100 to 99.8 for the first time in the past six months—starting in April 2014.

According to the NRA, over the past three months, 51% of the operators incurred capital expenditures in January 2015—compared to 60% the previous month. Increased capital expenditure is positive for the Consumer Discretionary Select Sector SPDR (XLY). XLY holds 37% of retail stocks—including a few of the restaurants mentioned below.

Restaurants make capital expenditure for opening new stores. This is critical for restaurants like Shake Shack (SHAK). It’s also important for purchasing new equipment as we learned in the Brinker International (EAT) series. It’s used to remodel and change the image of existing restaurants like Domino’s (DPZ) and McDonald’s (MCD). The iShares Global Consumer Discretionary ETF (RXI) holds about 2.5% of McDonald’s.

Outlook

As of January 2015, the six-month outlook for capital expenditure plans was 101.3. It has been at levels above 100 for the past 12 months.

Given the overall indicators that we discussed above, the restaurant industry is on an uptrend. Restaurant operators experienced strong same-store sales. Traffic is one of the key indicators in the Current Situation Index. It was 104.6 in January. It increased from from 103.9 in December.

Expansion decisions are based on several indicators. One indicator is how the restaurant operators’ feel about the business conditions. One of the parts of the Expectations Index is the expected business conditions. It measures this sentiment. We’ll discuss it in the next part of this series.

Advertisement

More From Market Realist