Black Box reported eye-catching sales and traffic growth for the month of October, up +2.8% and +0.4%, respectively. Two-year trends, though slightly weaker, were strong as well, with sales up +1.9% and traffic down -0.5%. October marks the first time we’ve seen positive traffic in the industry since January 2012. It is also the strongest two-year number we have on file since we began compiling data in November 2011.
This confirms our view that declining gas prices (July, August, September, October) and notable employment growth are leading to a period of improved trends in the restaurant industry. As you can see below, we were properly positioned for this move. We still view this as a difficult environment to be in for those looking for shorts within the restaurant space. With that being said, we believe we’ve identified a couple and will continue to judiciously search for more.
This is the fourth consecutive month employment growth has increased year-over-year across our five primary age cohorts. While we saw strength across the board, we do have several notable callouts:
- 20-24 YOA: an impressive +194.4 bps sequential acceleration in employment growth
- 25-34 YOA: the strongest month of employment growth we’ve seen since prior to the recession
- 45-54 YOA: four straight months of growth after 20 straight months of declines
- 55-64 YOA: second strongest month of growth we've seen in the last 22 months
While widespread employment growth is positive for all restaurants, October’s employment release is particularly positive for casual diners as both the 45-54 and 55-64 YOA cohorts are showing their strongest levels of growth in the last two years. With that being said, we continue to favor BLMN and BOBE on the long side as both have the potential to unlock substantial shareholder value through restructuring of sorts.
The release was also a positive for quick-service and fast casual restaurants, highlighted by a very strong month of growth in the 20-24 and 25-34 YOA cohorts. We continue to favor select quick-service and fast casual operators including JACK, YUM, CMG, KKD, PLKI and WEN.
September Employment Growth Data:
- 20-24 YOA +2.91 YoY; +194.4 bps sequentially
- 25-34 YOA +3.24% YoY; +77.5 bps sequentially
- 35-44 YOA +1.37% YoY; +48.9 bps sequentially
- 45-54 YOA +1.05% YoY; +84.2 bps sequentially
- 55-64 YOA +3.54% YoY; -5.6 bps sequentially
Please let us know if you’d like to discuss any of our current ideas in greater detail or would like to review our deep dive work on active ideas including BOBE, SBUX and CHUY.