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Increased Retail Sales Trade Data – Positive for Restaurant Stocks

Analyzing Key Restaurant Indicators for February (Part 3 of 15)

(Continued from Part 2)

Two key retail sales trade indices

Same-store sales is an important indicator for retailers, especially the brick and mortar businesses. This includes retailers and restaurants like Walmart (WMT), Kroger (KR), Costco COST), McDonald’s (MCD), Yum! Brands (YUM), Chipotle Mexican Grill (CMG), and others.

Two indices that track same-store sales in the US are the ICSC-Goldman Store Sales Index and the Johnson Redbook Retail Sales Index. The ICSC-Goldman Index reports consumer spending data on a weekly basis. It’s considered a more timely indicator. Similarly, the Johnson Redbook Index also tracks consumer spending. It’s reported on a weekly basis.

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Two key retail sales indicators

The latest ICSC-Goldman Index, released for the week of March 21, increased to 3% YoY (year-over-year) from 1.7%. The Johnson Redbook Index also released for the week of March 21. It came in at 2.8% YoY—compared to 2.7%.

According to the Redbook, the increase was due to increased apparel sales. The increased sales were because Easter falls earlier this year. Easter is on April 5—compared to April 20 last year. Redbook also noted that April will take a hit. The ICSC-Goldman Index is more consistent than the Johnson Redbook Index.

Takeaways for the restaurant industry

Strength in the index is positive for the restaurant industry. It indicates customers’ willingness to spend and vice versa. If the momentum slows, restaurants may experience a decline in traffic. This will eventually drop the same-store sales. It will also be negative for ETFs like the Consumer Discretionary Select Sector SPDR (XLY). XLY holds ~4% of McDonald’s (MCD). XLY also holds Starbucks (SBUX) and Darden Restaurants (DRI).

To learn more about how restaurant same-store sales performed in the fourth quarter, read Are Investors Lovin’ It? McDonald’s 4Q14 Earnings or Investing In Panera Bread? Key Takeaways From Its 4Q14 Earnings.

With the economy strengthening and consumers spending more, the Fed keeps a close watch on the price increase, or inflation. We’ll discuss this in more detail in the next part of this series.

Continue to Part 4

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