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NRA: Industry Outlook Strongest in Months; Same-store Sales, Customer Traffic Improves; Operators Op

WASINGTON, DC - The outlook for the restaurant industry has become increasingly optimistic, as the National Restaurant Association's comprehensive index of restaurant activity rose sharply in October, the operator trade association reported.

The Association's Restaurant Performance Index, a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry, jumped 0.9% in October, which followed a 0.1% gain in September.

"October's solid Index performance was the result of broad-based growth across the index components," said Hudson Riehle, senior vice president of research and information services. "Each of the eight indicators registered gains in October, which propelled the Index to its highest level in five months. In addition, the Index reflected a boost in plans for staffing levels and capital expenditures - positive developments for both the restaurant industry and the overall economy."

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.

The October increase in the Restaurant Performance Index was driven by solid gains 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), gained 1% in October.

For the 15th consecutive month, restaurant operators reported positive same-store sales. Fifty-five percent of restaurant operators reported a same-store sales gain between October 2003 and October 2004 - up from 53% who reported a sales gain in September. In contrast, only 28% of operators reported a same-store sales decline between October 2003 and October 2004, while 17% of operators reported no change in sales volume.

Customer traffic results were also stronger in October. Forty-five percent of restaurant operators reported an increase in customer traffic between October 2003 and October 2004 - up from 40% who registered an increase in September. Only 31% of operators reported a traffic decline in October - down from 36% who reported a decline in September.

The Expectations Index, which measures restaurant operators' six-month outlook for four industry indicators, increased 0.9% in October. The October gain marked the second strong increase in the last three months, and points toward continued restaurant industry growth during the next several months.

After slipping somewhat in recent months, restaurant operators have become more optimistic about sales growth in their establishments. Sixty percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), while only 8% of operators expect to have lower sales in six months (compared to the same period in the previous year).

Operators also remain confident in the direction of the overall economy. Fifty-two percent of restaurant operators expect economic conditions in six months to be better than they are now -the strongest level in five months. Only 9% of restaurant operators expect economic conditions to worsen in six months.

Along with their positive sales outlook, operators are continuing to plan for staffing increases during the next several months. Twenty-four percent of operators expect to have higher staffing levels in six months (compared to the same period in the previous year), while only 9% of operators expect to employ fewer workers in six months.

An increasing proportion of restaurant operators are making plans for capital expenditures in the coming months. Sixty-five percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months - up from 59% who reported similarly last month.

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