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Conclusion:  A number of factors that influence restaurant sales trends and despite a numbers of cautious signs that should normally impact sales trends, a number of concepts continue to show improving trends. 

Sysco Corporation executives shared some important insight on their conference call today:

“So I think we are beginning to see some things that would hopefully lead to more positive growth for the industry.  With that said, I think what we're also continuing to see is the strongest operators are doing the best.  So it's definitely better than what it was a year ago, and it's certainly better than what it was six months ago.  I'd say it's still somewhat tenuous, but if you're a good operator out there today, you're starting to see some good signs of late despite.”

We also need to consider the following:

  1. The October employment numbers suggest the economy regained momentum early in the fourth quarter and sentiment certainly reflects that.  However, there were seasonal adjustments that were incorporated into the payrolls number that exaggerated the true level of job growth.
  2. Another factor limiting the upside of my perspective for restaurant stocks is the fact that both personal income and spending weakened in September.  Personal income fell 0.1%: the first decline since last September.
  3. The most recent consumer credit data also suggests that some caution may be warranted.  Restaurants have shown resilience in sales trends of late but a deleveraging consumer is a concern going forward.  The continuation of low price points despite the relatively strong sales performance of late indicates that management teams appreciate that the consumer is still under pressure.

Margins in the restaurant industry remain relatively robust and this is surprising to me given the high levels in food prices and the CRB foodstuffs index.   Another insightful comment from SYY today was that they are seeing 10% inflation in meat, dairy, and seafood.

RESTAURANTS TRENDS - knapp vs con credit

Howard Penney

Managing Director