The past three-month capital expenditure trend remained elevated with the National Restaurant Association’s (or NRA) current capital expenditure index rising to 102 in May 2015 compared to 101.2 in April 2015.
Comparing restaurant capex with the NRA’s index
The above chart shows the NRA’s capital expenditure index has trended with the capital expenditure of 35 plus restaurants. These restaurants include Wendy’s (WEN), Panera Bread (PNRA), McDonald’s (MCD), and Brinker International (EAT). Bear in mind that the NRA surveys over 400 restaurant operators across the US. The total capital expenditure for the restaurants in the above chart was $1.5 billion for the most recent quarter.
According to the NRA, these expenditures were made towards expansion, purchase of equipment, or remodeling. McDonald’s and Burger King have been remodeling their restaurants to attract traffic. An increase in capex should lead to an increase in sales, which is also positive for the Consumer Discretionary Select Sector SPDR ETF (XLY). XLY’s portfolio has a 10% exposure to restaurant stocks. According to the NRA, 60% of restaurant operators increased their capital expenditure spending over the past three months.
Next, we’ll look at the restaurant operators’ expectations for capital expenditure. Usually optimism in the economy leads to increased capital expenditure. The NRA publishes an expectation on capital expense as well, which we’ll also discuss in the next part of this series.