US Consumers No Longer "Eating Out" - Restaurant Guest Counts Tumble To Three Year Lows

If one follows the government's retail spending data for "retail food and services sales" segment, the data is not bad. Yes, the annual pace of increases is declining as shown in the following St. Louis Fed chart, but at 2.5% Y/Y, it hasn't moved much over the past two years, suggesting flat overall spending trends.

 

A different tracker of US Restaurant sales, that of the National Restaurant Association's Restaurant performance index, shows a more troubling picture. As the NRA reports for its latest data, restaurant sales softened in May, along with operator expectations, as the industry continued its choppy 2016. The monthly indication of the health of the industry fell 0.9 percent to 100.6 in May, from 101.6 in April. 

“The RPI continued along a choppy trend line in May, with the index bouncing between moderate gains and losses in recent months,” Hudson Riehle, senior vice president of research for the NRA, said in a statement. “Much of the May dip came from declines in the same-store sales and customer traffic indicators, which softened from their stronger April performance.” The index is comprised of two parts: one that measures the current situation, and another that measures operators’ expectations. The index is calculated using responses to the association’s monthly operator survey.

Operators reported a net decline in same-store sales in May — 40 percent said their same-store sales increased in May, while 42 percent said same-store sales fell. By comparison, 58 percent of operators said their same-store sales increased in April.

 

Traffic was worse. Only 27 percent of operators said traffic increased in May, and 46 percent said traffic fell. In April, 52 percent of operators said traffic increased.

 

May was the first time in five months that operators reported a net same-store sales decline — which likely indicates a broad weakening in the sales environment.

But the worst news for the restaurant industry came from the closely followed, and only available to subscribers, Knapp-Track index, created by Malcom Knapp. A brief history:

Since 1991, I have provided KNAPP-TRACK™ for the chain dinner house/theme restaurant market. In 1993, I started providing KNAPP-TRACK:FLASH™, a weekly companion to the monthly KNAPP-TRACK™. KNAPP-TRACK™ monthly data on a USA geographic level only is published monthly with industry analysis in Nations Restaurant News.

 

KNAPP-TRACK™ is a monthly sales and guest count tracking service for comparable restaurants and separately, for all restaurants monthly over month year ago. The reporting of data is for USA, USA year to date, the USA broken into 11 regions and 61 ADI TV markets.

 

KNAPP-TRACK:FLASH™ is a weekly sales and guest count tracking service, reporting comparable restaurant data. The reporting of data is for USA, California and 20 ADI TV markets. KNAPP-TRACK™ monthly data on a USA geographic level only is published monthly with industry analysis in Nations Restaurant News.

 

Current subscribers account for over $32.1 billion in sales and over 10,400 restaurants. See attached list for current subscribers. Our subscribers account for over 87.8% of the dollar volume of the 47 casual dining chains in NRN top 100 and second 100.

The latest data, courtesy of Bank of America, was particularly disturbing, because unlike the government data, and even the NRA's more realistic index, it showed sales and guest counts in June tumbling to new multi-year lows. In fact, as of June, the number of guest counts was the worst in since February 2013. Here are the key takeaways from BofA's Joseph Buckley:

  • Knapp-Track casual dining same store sales in June were soft with comps down 2.3% and guest counts down 4.8%.
  • Sales and guest counts in June set multi-year lows. Guest counts were especially soft running down 5.9% on a 2-year basis
  • Restaurant sales were soft through 2Q but ended the quarter weakly which increases concerns for 2Q earnings.

More details on June's "especially soft" guest counts:

Knapp-Track casual dining same store sales for the month of June were down 2.3% with guest counts down 4.8%. These results compare against same store sales that were up 1.5% and guest counts that were down 1.1% in June 2015. The June Knapp-Track sales results imply a 2.5% check increase.

 

Sales and guest counts in June were the weakest since January 2014 (more than two years) and February 2013 (more than three years), respectively. On a two-year basis, same store sales were down 0.8% with guest counts down 5.9%. All four weeks in June had both negative same store sales and guest counts. The best week of the month was the final week with week 1 the softest.

 

Restaurant sales softened during 2Q and Knapp-Track casual dining data signals a weak end to the quarter.

And while the fundamentals clearly continue to deteriorate, we disagree with BofA's conclusion: "These sales results are a worry point for investors as 2Q earnings season approaches."  Just one look at today's all time high S&P 500 shows that investors are not worried about anything at all.

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