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Restaurants should have happy holiday sales

Analysts outline expected sales trends for fourth quarter and beginning of 2012

As businesses gear up for the holiday spending season, restaurant sales for the next few months are looking up.

Although most restaurants typically don’t generate a disproportionate percentage of annual sales during the fourth-quarter holiday season — typically around 27 percent of full year sales, according to analysts at Barclays Capital — this year chains across all segments are expecting to see a boost in sales.

High-end steakhouse brands Morton’s The Steakhouse and Ruth’s Chris Steakhouse, two chains that do count on holiday bookings, both expect to capitalize, without raising prices, on higher holiday spending among consumers. The outlook from those two public companies bodes well for the fine-dining segment as a whole. Outside of private party bookings, casual-dining and quick-service brands plan to use a broader mix of gift cards and menu and price promotions to lure in holiday diners.

According to a report from RBC Capital Markets securities analyst Larry Miller, consumers’ restaurant spending plans over the next 90 days jumped 700 basis points, or 7 percent, in November. It was the largest increase in expectation to spend in over a year. The results were drawn from 2,691 responses from surveyed consumers.

“We don’t want to get too excited about the November gain as it likely has some level of seasonality with the holidays ahead and is 700 [basis points] below last year’s level,” Miller said. “That said, it’s still encouraging to see our consumer spending index back to levels seen before the U.S. credit downgrade and subsequent European turmoil.”

As a whole, the retail segment’s same-store sales are expected to increase 3 percent this holiday season, with restaurants expected to see the highest increase among consumer sectors, with growth around 4 percent, according to analysts at Barclays Capital. The investment bank held a holiday sales roundtable in New York last week, which Nation’s Restaurant News attended.

Barclays attributes this retail-wide positive forecast for the holiday season to three key factors: an improving back-to-school season, which typically has a direct correlation to the holiday spending environment; an extra shopping day between Thanksgiving and Christmas; and an unemployment rate that has dropped slightly to 9 percent. In addition, marginal relief in oil prices in recent weeks could help.

As far as restaurants are concerned, in the fourth quarter, all sub-segments of the industry — quick service, casual dining and what Barclays calls specialty — are expected to post increased same-store sales for the first time in four years, said Jeffery Bernstein, Barclays Capital’s director and senior research analyst following the restaurant industry. It’s a trend that Bernstein projects will carry over into the first quarter of 2012.

Of the restaurant companies that Bernstein tracks — Buffalo Wild Wings, The Cheesecake Factory, Chipotle, Domino’s, Darden, Brinker, Jack in the Box, McDonald’s, P.F. Chang’s, Panera, Starbucks, Sonic, Texas Roadhouse, Wendy’s and Yum! Brands — Chipotle is expected to report the largest same-store sales increase in the 2011 fourth quarter with a 10.5-percent jump, while P.F. Chang’s is expected to struggle the most with a projected 2.4-percent drop.

On average, fast-casual restaurant same-store sales are projected to increase 7.6 percent in the fourth quarter and quick-service 4.3 percent, while casual-dining restaurants are projected to report a modest 1.5-percent uptick.

“Casual dining is overcrowded with more supply than demand,” Bernstein said. “Fast casual is stealing market share, and unless we see significant closures, [casual-dining] won’t be a leading segment.”

However, Bernstein did note that a recent stabilization of sales trends in the segments indicates a more resilient, higher-income consumer.

Contact Charlie Duerr at [email protected].

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