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Despite Moderate Decline in Restaurant Performance, NRA Outlook Remains Positive



The NRA's Restaurant Performance Index stood at 101.6 in April, down 1% from its March level. Despite the decline, the Index remained above 100 for the 34th consecutive month, which represents expansion in the Association's composite index of eight key industry indicators.

"Although April's Index reading was down from stronger levels in recent months, it still signals a period of expansion for the industry's key indicators," said Hudson Riehle, senior vice president of research and information services. "A majority of restaurant operators are anticipating sales growth in the short term, with growth in staffing levels and capital expenditures expected as well."

The April decline in the Restaurant Performance Index was the result of drops in both the current situation and expectations components of the Index, the NRA explained. 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 April, down 1.3% from March and its first decline in seven months.

Although April's performance was much softer than recent months, restaurant operators reported a same-store sales gain for the 33rd consecutive month. Forty-eight percent of restaurant operators reported a same-store sales gain between April 2005 and April 2006, down from 63% of operators who registered a sales gain in March. Thirty-six percent of operators reported a same-store sales decline between April 2005 and April 2006, while 16% of operators reported no change in sales.

Restaurant operators also reported a slowdown in customer traffic in April. Thirty-nine percent of restaurant operators reported an increase in customer traffic between April 2005 and April 2006, down from 51% of operators who reported traffic gains in March. Thirty-eight percent of operators reported traffic declines in April, while 23% reported no change in customer traffic.

In contrast to the sales and traffic trends, restaurant operators reported a boost in capital spending in recent months. Fifty-six percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the strongest level of activity in 18 months.

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 102.5 in April, down 0.7% from its March level.

Although levels are down from recent months, a majority of restaurant operators are optimistic about sales growth in the coming months. Fifty-six percent of restaurant operators expect their sales volume in six months to be higher than it was during the same period in the previous year, down from 62% who reported similarly last month. In contrast, just 11% of restaurant operators expect their sales in six months to be lower than it was during the same period in the previous year.

Restaurant operators are also somewhat less optimistic about the direction of the overall economy. Thirty-seven percent of operators expect economic conditions to improve in six months, down from 43% last month. Fifteen percent of operators said they expect economic conditions to worsen in six months, while 48% expect economic conditions to remain about the same.

A positive sign for both the restaurant industry and the overall economy is the strong proportion of restaurant operators planning to make new capital spending in the coming months. Sixty-one percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, the seventh consecutive month at a level of 60% or higher.

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