At this crisis point in history - what could possibly create these rare and extraordinary gains?

An Arizona multi-millionaire's revolutionary initiative is 
helping average Americans  find quick and lasting stock market success.

Since the Coronavirus came into our lives this slice of the stock market has given ordinary people the chance to multiply their money by 96% in 21 days on JP Morgan.


Trading  | July 15, 2017

One month after we reported that the “restaurant industry hasn’t reported a positive month since February 2016“, we can add one more month to the running total: according to the latest update from Black Box Intelligence‘s TDn2K research, in June both same-store sales and foot traffic “growth” declined once more, dropping by -1% and -3%, respectively, extending the longest stretch of year-over-year declines for the US restaurant industry to 16 consecutive months – the longest stretch since the financial crisis – with sales rising in 45 markets while declining in 150 with Texas, the worst region in the US, suffering a 2.2% and 4.1% decline in sales and traffic respectively.

Source: TDn2K

As Black Box adds, “bad news is same-store sales and traffic growth were still negative in June and the second quarter of 2017; and year-over-year, same-store sales have been declining for the last six consecutive quarters.”

While there was some offsetting “good news”, namely that “June results were the best for the industry for both sales and traffic growth since January” – in other words a 3% decline in traffic is now spun as “good” –  it may have been due to a calendar effect and certainly was not enough to offset growing concerns about the relentless deterioration in the space.

“This is likely the result of a combination of factors,” commented Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K. “While economic indicators have been pointing to some improved conditions this year, the reality is that we are also lapping over some weak results in 2016 which make the comparisons much easier for the industry in 2017.”

More importantly, on a topic that is especially dear to the Fed’s heart now that inflation has missed for 4 consecutive months, average guest checks grew at the same rate in Q2 as Q1, or 2.2%, still unable to offset the decline in overall traffic. What is concerning is that check averages have been growing more slowly since 2015, when the average check was up 2.8%, well above core inflation.

And in the biggest red flag for the Fed, Black Box’ Fernandex confirmed that the Fed’s fears about lack of pricing power, at least in the restaurant sector, are justified, as “brands seem to be reluctant to implement significant price increases given the current environment.” Making matters worse, in order to boost traffic, “price promotions have been widely utilized, especially by struggling brands and segments” said Fernandez. “Average guest checks for the ‘bar and grill’ sub-segment of casual dining remain flat year over year for the first two quarters of 2017, while casual dining overall has seen its guest checks grow by only 1.2 percent.”

According to Joel Naroff, chief economist at TDn2K, while employment continues to grow at a robust pace, a disconnect has emerged as “consumption, meanwhile, has slowed and vehicle sales have faltered.” This is also evident in the latest retail sales data which has been on a steady decline for the past two years.

… a fact corroborated by Bank of America’s internal spending data:

In an effort worthy of a Fed economist, Naroff tried to spin that data, saying that “this is good news for other retail sectors, including restaurants, as credit growth is moderating. The rise in debt payments has funneled money from spending on other goods and services.” Odd, it’s almost as if he is saying that savings and living within one’s means – two ideas that are anathema to any Keynesian – are… good. Still, he does admit that while the outflow from restaurants is ending, “an uptick in demand has yet to appear.”

Digging through the data, reveals that the decline is not uniform, and that affluent consumers are enjoying the recent promotional scramble, responding positively to those brands that provide a more experience-driven dining occasion. “Fine dining was the best performing segment based on same-store sales growth in the second quarter, followed by upscale casual. These were the only two segments with positive sales. They were also the top performing segments in the first quarter.”

Here, too, a problem emerges because as the report admits, the ranks of the “affluent” are not growing: even those segments with positive growth in their same-store sales are doing so through increases in average guest checks and not through driving incremental guest visits.

In fact, all segments experienced a fall in their guest counts year over year during the quarter. The deteriorating traffic was attributed to increased competition for dining from within the industry (independent operators) and from other sectors (grab-and-go prepared food options, meal replacement kits, and other players like convenience stores and food trucks) which continue to grab additional share from traditional chain restaurants. The weakest segments based on second quarter results were fast casual and the ‘bar and grill’ sub-segment within casual dining.

Meanwhile, in a potential threat to the likes of McDonalds and Shake Shack, quick service, which was the top-performing segment in 2016 and was among the top three segments in 2015, is now struggling to keep up building on that rapid growth. The segment has now experienced three consecutive quarters of negative same-store sales growth, although one wouldn’t know it by looking at McDonalds’ share price.

* * *

Ironically, in addition to challenges from falling guest counts, the inability to pass through price increases, rising competition and declining overall spending, strong challenges continue to confront restaurants in both staffing and retaining enough qualified workers. We say ironically, because as we showed after the latest jobs report, restaurant/fast food/waiter/bartender hiring remains the only strong spot in the US labor market. As the chart below shows, starting in March of 2010 and continuing through June of 2017, there have been 89 consecutive month of payroll gains for America’s waiters and bartenders, an unprecedented feat and an all time record for any job category. Putting this number in context, total job gains for the sector over the past 7 years have amounted to 2.4 million or over 14% of the total 16.7 million in new jobs created by the US over the past 89 months.

And yet, according to BlackBox, restaurant operators are pessimistic regarding the difficulty of recruiting in the upcoming quarters. According to TDn2K’s People Report, when it comes to finding enough qualified employees to staff the restaurants and retaining them once they are hired, the industry is still facing an uphill battle with rolling-12-month restaurant hourly employee turnover increased again in May. Turnover for restaurant managers is also on the rise and is tracking at a 10-year high, with brands reporting that the majority of applicants are coming from competing restaurants.

And while one has yet to see it emerge in average hourly earnings, the result is – at least according to Black Box – pressure on restaurant wages, “which are expected to increase in the upcoming quarters.” Almost 75% of restaurant companies report that they are offering higher wages as an incentive for potential employees.

Meanwhile, as the restaurant industry is stuck in its longest slump since the “second great depression”, US consumer spending continues to decline, with declines not just across the chain restaurant space, but also at food and beverage stores…

… hammered by rising healthcare, housing and college costs, even as the broader US population is now burdened by a record $1.4 trillion in student loans.

In such an environment restaurants – from mediocre QSRs to the upscale sector – will continue facing challenges in both traffic and pricing.

As Black Box’ Naroff concludes in an attempt to put a silver lining on the situation, “the summer season should be solid as people have money to spend. Unfortunately, until wage gains improve, which so far continue to be disappointing, no major acceleration in spending at restaurants should be expected.”


A revolutionary initiative is helping average Americans find quick and lasting stock market success.

275% in one week on XLF - an index fund for the financial sector. Even 583%, in 7 days on XHB… an ETF of homebuilding companies in the S&P 500. 


{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

You might also like


Stocks | January 28

Stocks | January 28

Investing, Stocks | January 27

Investing | January 27