Restaurant Industry Outlook Softened Somewhat As The Restaurant Performance Index Declined In July

The outlook for the restaurant industry softened somewhat in July, as the National Restaurant Association's comprehensive index of restaurant activity registered a moderate decline. The Association's Restaurant Performance Index (RPI) - a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry - stood at 100.9 in July, down 0.5 percent from June. Despite the decline, the RPI remained above 100 for the 51st consecutive month, which represents expansion in the Association's composite index of eight key industry indicators.

"July's RPI reading still signals a period of expansion for the industry's key indicators, despite being down from stronger levels in recent months," said Hudson Riehle, senior vice president of Research and Information Services for the Association. "Operators overall reported positive same-store sales levels in July, and they anticipate continued growth in the months ahead."

The Restaurant Performance Index is based on the responses to the National Restaurant Association's Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor and capital expenditures. The Index consists of two components - the Current Situation Index and the Expectations Index. (Follow this link to view this month's report:
www.restaurant.org/pdfs/research/index/200707.pdf).

The July decline in the Restaurant Performance Index was the result of drops in both the current situation and expectations components of the index. The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 100.5 in July - down 0.5 percent from June and its first decline in three months.

Although the overall Current Situation Index declined in July, restaurant operators continued to report positive same-store sales - albeit softer than the June results. Forty-eight percent of restaurant operators reported a same-store sales gain between July 2006 and July 2007, down from 56 percent who reported a sales gain in June.
Thirty-six percent of operators reported a same-store sales decline in
July, up from 29 percent who reported similarly in June.

Restaurant operators also reported softer customer traffic levels in July. Thirty-eight percent of restaurant operators reported an increase in customer traffic between July 2006 and July 2007, down from 43 percent who reported similarly in June. Forty percent of operators reported a traffic decline in July, while 22 percent said their customer traffic levels were about the same as they were in July 2006.

In contrast to the softer sales and traffic results, capital expenditure activity was stronger in July. Fifty-seven percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the strongest level in nearly three years.

The Expectations Index, which measures restaurant operators' six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 101.2 in July - down 0.5 percent from June and its lowest level in 11 months.

Restaurant operators remained relatively optimistic about sales growth in the coming months. Forty-nine percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), roughly on par with 50 percent who reported similarly last month. Sixteen percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year.

Although their outlook for sales growth remains positive, restaurant operators are less optimistic about the direction of the overall economy. Twenty-six per