Why the Restaurant Performance Index Is Important for Investors
Key Takeaways from April's Restaurant Performance Index
Restaurant performance index
With the first quarter earnings season behind us, investors can track the progress of the restaurant industry through the National Restaurant Association’s (or NRA) restaurant performance index (or RPI). This monthly report from the NRA tracks the US restaurant industry’s health and its six-month outlook.
The RPI consists of two equally weighted indices: the current situation index and the expectation index. These two indices consist of four indicators:
same -store sales
traffic
capital expenditure
labor
The RPI increased to 102.7 in April 2015, up from 102.2 in March 2015. This increase was driven by customer traffic and stronger same-store sales growth. This indicator is indexed to 100, so values above 100 indicate an expansion period and below 100 indicate a contraction period for the US restaurant industry. But investors should be cautious and determine whether growth in the index is coming from the current situation, which is looking backwards, or the expectations, which is looking forward. We’ll look at each of these indicators in more detail later in this series.
Takeaways for the restaurant industry
If the RPI is above 100, it means that the restaurant industry is in an expansion stage, which is positive for companies like Domino’s (DPZ) and Chipotle (CMG). A larger portfolio such as the ETF Consumer Discretionary Select Sector SPDR (XLY), which has a 3% weight in Starbucks (SBUX) and a 1.5% weight in Yum! Brands (YUM), also benefits from this trend.
In this series, we’ll discuss the components of the RPI individually to see where the restaurant industry stands currently and where it is headed over the next six months. We’ll first look at the current situation index to examine the overall health of the US restaurant industry.
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