Two key retail sales indices
Same-store sales growth is an important indicator for retailers, especially the bricks-and-mortar businesses. This includes retailers as well as restaurants such as Walmart (WMT), Kroger Co. (KR), Costco (COST), McDonald’s (MCD), Yum! Brands (YUM), Chipotle Mexican Grill (CMG), and others.
Two indices that track same-store sales in the US are the ICSC-Goldman Sachs Chain Store Sales Index and the Johnson Redbook Retail Sales Index. The ICSC-Goldman Sachs index reports consumer spending data on a weekly basis and is considered a more timely indicator. Similarly, the Johnson Redbook index tracks consumer spending and is reported on a weekly basis.
ICSC Goldman and Redbook indices
The latest ICSC-Goldman index was released for the week of April 21, revealing a 3.3% increase year-over-year, up from 1.9%. The Johnson Redbook index, which was also released for the week of April 21, fell to 0.8% year-over-year, down from 1.1%.
According to Redbook, retail took a hit because Easter fell early, on April 5, instead of April 20 as it did last year. Redbook also said same-store sales would return to between 3% to 3.5% once this calendar distortion has passed.
The ICSC-Goldman index is considered more consistent than the Johnson Redbook index.
Takeaways for the restaurant industry
Strength in the ICSC-Goldman index is a positive for the restaurant industry. It indicates customer willingness to spend. If momentum slows, restaurants may experience a decline in traffic, which would eventually hit same-store sales. This would be negative for the Consumer Discretionary Select Sector SPDR Funds (XLY), which holds ~4% or McDonald’s (MCD). XLY also has 3% exposure to Starbucks (SBUX), and 0.3% exposure to Darden Restaurants (DRI).
To learn more about how restaurant same-store sales performed in the latest quarter, read Brinker International Reports Double-Digit Earnings Growth for 3Q15 or Starbucks’ Earnings Deliver Impressive 18% Growth in 2Q15.
As the economy strengthens and consumer spending increases, the Fed keeps a close watch on price increases, or inflation, which we’ll discuss in more detail in the next part of our series.