Current versus expected performance
In the last part of this series, we looked at the National Restaurant Association’s Restaurant Performance Index, which is a composite of two equally-weighted indices— the current situation index and the expectations index.
Floating above 100
In February 2015, the current situation index stood at 102, down from 102.7 in January 2015. This is a backward-looking measure, based on past trends in key performance metrics, including same-store sales, traffic, capital expenditure, and labor. The current situation index has been above 100 since March 2014.
The expectations index stood at 103.3 in February, a month-over-month increase from 102.8. This is a forward-looking measure that indicates the restaurant operator outlook for the next six months with respect to same-store sales, employees, capital expenditures, and business conditions. An increase in this index means that restaurant companies are optimistic about business for the next six months.
Takeaways for the restaurant industry
Both measures indicate an expansionary period for restaurants. The current situation index reflects the actual health of the industry. Restaurants have advanced operations by adding sales and labor, and have added more stores by incurring capital expenditures.
But despite this positive uptrend, casual dining restaurant stocks such as Darden Restaurants (DRI), Bloomin’ Brands (BLMN), Brinker International (EAT), and DineEquity (DIN) are seeing a slowdown due to a shift in customer preferences and newer concepts such as fast-casual restaurant Chipotle Mexican Grill (CMG).
To take advantage of several restaurant concepts at once, you might consider the Consumer Discretionary Select Sector SPDR Fund (XLY), which invests 37% of its portfolio in retail.
Next, we’ll look more closely at the key indicators that make up these two indices.