uploads///Restaurant Operators Capex Outlook

Restaurant Capex Outlook Remains Elevated in May

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Dec. 4 2020, Updated 10:52 a.m. ET

NRA’s capex outlook

Previously, we learned that the capital expenditure for the restaurant industry over the past three months in the US has risen. In this part, we’ll cover the restaurant operators’ outlook for capital expenditure over the next six months.

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Interpretation

Restaurant operators are expecting to increase their capital expenditures for opening new stores, purchasing new equipment, and remodeling or re-imaging existing restaurants.

The expected capital expenditure index increased by 0.9% to 100.8 in May from 101.7 in April. This index is a forward-looking measure. According to the NRA, 54% of operators plan to increase capital expenditure compared to 59% as reported in the previous month. Increased capital expenditure is also positive for the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY has a 37% weight in retail stocks, and holds 4% of McDonald’s (MCD), 1.5% of Yum Brands (YUM), and 0.3% of Darden (DRI).

The fast casual restaurant segment is on an uptrend, and this translates into capital expenditure. For example, Chipotle (CMG), which only operates company-owned stores, has been growing its units at a rate of 12% each year. A restaurant’s requirement for capital increases for company-owned stores as opposed to franchising, where the financing comes from the franchise owner.

Increased units lead to a requirement for labor as well. In the next part of this series, we’ll look at the current situation for labor in the restaurant industry and see whether restaurant operators are anticipating an increase in hiring in the coming months.

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