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Restaurant Traffic Likely to Stay Stable in Second Half After Depressed Quarterly Trends, UBS Says

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Restaurant Traffic Likely to Stay Stable in Second Half After Depressed Quarterly Trends, UBS Says

Traffic at US restaurants remained depressed in the second quarter amid a difficult consumer environment, though there are signs that point to a stable performance in the second half, UBS Securities said in a note sent Friday.

Restaurants reported "solid" comparable sales in the quarter, with growth accelerating to 1.7% from 1.1% in the first quarter, UBS analyst Dennis Geiger wrote. But that was driven by a sequential improvement in the amount spent by consumers even as traffic fell 1.9%, Geiger said.

The traffic weakness came despite a boost from the US co-hosting the FIFA Men's World Cup, UBS said.

Restaurant demand remained pressured by affordability challenges amid high gas prices, according to Geiger, who recently attended a quarterly webinar hosted by restaurant industry data and market insights provider Black Box Intelligence.

"BBI believes (same-store sales) stability in recent months is likely driven by consumers protecting restaurant spending and improved consumer sentiment in June, (with) declining recession odds supporting expectations for stable (second-half) sales and traffic performance," Geiger wrote.

Earlier this month, Restaurant Brands International (QSR) reported better-than-expected second-quarter earnings amid strong comparable sales growth at Burger King. McDonald's (MCD) second-quarter revenue fell short of market expectations as comparable sales growth in the US slowed on an annual basis. Wendy's (WEN) second-quarter earnings fell year over year amid weak traffic trends.

Upscale casual restaurants led the industry in the second quarter, delivering 3.2% same-store sales growth even as traffic slipped 0.2%, according to UBS. Casual dining logged a 2.3% increase in sales and a 0.9% drop in traffic. The quick service and fast-casual segments also saw sales growth despite lower traffic, while family dining reported declines in both.

The impact of high gas prices is still the most pressing concern for the restaurant industry.

"Elevated gas prices continue to pressure an already stressed consumer, (with) dining-out habits changing after prices surpassed the $3.50 (per) gallon threshold in early March," the UBS said.

US retail gasoline prices averaged $4.0898 per gallon Friday, compared with $3.2103 a year ago, according to AAA motor club data.

US consumer sentiment dropped in August amid concerns that inflation will continue to be high for the "foreseeable future," final results of a University of Michigan survey showed Friday.

Price: $78.20, Change: $+0.13, Percent Change: +0.17%

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