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Analysts: Recovery picking up momentum

Securities analysts are reporting an “accelerating and broadening recovery” as restaurant sales continue to pick up steam as the year winds down.

“While a strong rebound in restaurant industry sales was somewhat mixed or more selective in the first half of 2010, the back half of year has proven to be stronger and more widespread,” said Robert Derrington, securities analyst with Morgan Keegan & Co. Inc. “Improving restaurant sales trends has been a consistent theme in the restaurant industry over the last several weeks and months.”

David E. Tarantino, securities analyst with Robert W. Baird & Co., said Tuesday that his company’s November sales survey results also reflected a positive trend.

“Preliminary indications from our survey of U.S. private chains (annualized sales near $14 billion) suggest November industry comps were near or modestly better than solid October levels,” Tarantino said. “Our survey suggests trends for restaurants may not have been as positive as indications for retail overall, although we still view a continuation of the trend seen in October … as encouraging.”

Baird’s survey indicated November was a “strong month for fast-casual chains” and produced “positive indications for QSR.” Fifty-nine percent of quick-service operators reported that same-store sales were better in November than October, while only 11 percent reported worse same-store sales.

In the fast-casual sector, 45 percent said comp sales were better in November than in October, while 31 percent reported worse.
Tarantino observed “stable trends for casual dining,” with 41 percent of those surveyed reporting “better comps in November than the solid trends seen in October.” About 46 percent cited weaker comps, he said.
Derrington of Morgan Keegan, in an analyst report Monday, added “that positive momentum has been building since mid-year and further accelerating in recent months as consumer confidence has improved.”

He also cited such other encouraging statistics as:

• The National Restaurant Association’s October restaurant performance index logging its strongest level since September 2007 with more than half of polled restaurant operators reporting positive same-store sales in the month.

• November retail sales increased 5.8 percent and beat the expectations of a 3-percent to 4-percent increase, according to the International Council of Shopping Centers.

• First Data’s SpendTrend report that indicated Black Friday- and Thanksgiving-related spending at foodservice and drinking places was up nearly 10 percent over last year.

Derrington also said holiday party business and gift-card sales likely will be positive in December.

“Based on our channel checks and recent comments from several restaurant companies, we believe the holiday party business for the industry is showing considerable strength with sales up double digits for some, especially higher-end casual-dining chains and fine-dining restaurants,” Derrington said.

And while the annual growth in sales of gift cards has moderated, he said, “their popularity and convenience have improved as their points of distribution have increased.”

That bodes well for first-quarter sales, Derrington added, as an estimated two-thirds of gift cards are redeemed within the first three months of being purchased.

Contact Ron Ruggless at [email protected].

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