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Dining Out: US restaurant sales growth outpaces retail again in October

S&P Global Market Intelligence

Cannabis Hashing Out a Budding Industry

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Dining Out: US restaurant sales growth outpaces retail again in October

Year-over-year sales growth for U.S. bars and restaurants continued to outpace overall retail spending gains in October despite a slowdown from the previous month, according to an analysis by S&P Global Market Intelligence.

Food services and drinking places also continued adding jobs in October at a faster pace than the broader economy as menu prices continued to rise. Meanwhile, most of the share prices of the 15 largest publicly traded U.S. restaurants by market capitalization fell in the month ended Nov. 15.

Sales continue to rise

Food services and drinking places sales grew 4.7% in October to a seasonally adjusted $65.32 billion, according to U.S. Census Bureau advance monthly sales estimates released Nov. 15. The category includes bars, restaurants, caterers and other food service vendors.

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In September, food services and drinking places sales grew 6% to a seasonally adjusted $65.52 billion on a preliminary basis, up from a previous estimate of 4.9% growth, according to the Census Bureau. Sales in August were revised down to 2.8% growth from a previous estimate of 2.9%.

All retail sales grew 3.1% in October over the year-ago period, down from 4.1% growth posted in September. October marked the second straight month that sales at restaurants and bars grew faster than retail sector sales.

Strong sales growth at limited-service restaurants, where customers order and pay before dining, continued to support sales growth for food services and drinking places, said Jake Bartlett, a SunTrust Robinson Humphrey analyst, in a Nov. 15 report.

During the same month a year ago, food services and drinking places sales grew 6.8% to $62.40 billion, while and retail sales grew 4.8% to $510.69 billion, according to the Census Bureau.

Restaurants keep adding workers

Food services and drinking places added 47,500 workers in October for a seasonally adjusted total of 12.3 million, according to the U.S. Bureau of Labor Statistics, or BLS. Total nonfarm industries added 128,000 employees for a total of 151.9 million workers, and the unemployment rate in October was 3.6%, up from 3.5% in September.

Hiring at food services and drinking places continued to grow faster than the overall economy. Employment at bars and restaurants grew 2.6% year over year in October, down from 2.7% in September.

Meanwhile, total nonfarm hiring grew 1.4% year over year in October, down from 1.5% in September.

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Dining out costs increase

The cost of dining out continued its steady rise in October, fueled by faster gains at quick-service restaurants than at full-service eateries.

Prices for the "food away from home" subcategory of the consumer price index, or CPI, grew an unadjusted 3.3% in the year through October, according to the BLS. "Food away from home" covers the average prices for meals ordered at eateries.

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The CPI for full-service meals and snacks grew 3.5% in the year through October, while limited-service meals and snacks rose 3.3%. The full-service meals and snacks category includes restaurants where patrons are waited on at their tables, and the limited-service category covers eateries where people pay for their food up front.

The "food at home" subcategory of the CPI, which refers to average prices at grocery stores, grew 1% in the 12 months through October.

Restaurant stocks shakedown

Ten of the largest publicly traded U.S. restaurants posted stock declines in the month ended Nov. 15, while share prices rose for five of these companies, according to Market Intelligence. At a wider level, the S&P Composite 1500 Restaurants subindex fell 4.4%, and the S&P Composite 1500 index grew 4.2%.

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Shake Shack Inc. posted a 30.8% share price decline in the month ended Nov. 15. The New York-based burger venture's stock suffered following disappointing third-quarter earnings results and lowered 2019 guidance for same-store sales and restaurant margin, said Lauren Silberman, a Credit Suisse analyst, in a Nov. 8 report. There are concerns about Shake Shack's longer-term margins and its willingness and ability to raise prices, Silberman said.

The share decline, though, is "overblown," Silberman said, adding that the drag on same-store sales from Shake Shack's transition to its delivery partnership with Grubhub Inc. should be temporary and offset by a recent launch of a co-marketing campaign by the companies.

Meanwhile, shares in Bloomin' Brands Inc. rose 28.4%, the biggest gain for the top publicly traded restaurant companies during the month ended Nov. 15. The company behind Outback Steakhouse and Carrabba's Italian Grill said Nov. 6 it was exploring strategic alternatives, including a possible sale, to boost its shareholder value.

Bloomin' Brands' recent comparable sales trends have been encouraging, said Sharon Zackfia, a William Blair analyst, in a Nov. 6 report.

"The bounce has been across the portfolio of brands, with momentum driven by off-premises growth, improved in-restaurant dinner traffic," and a strong Outback limited-time offer that includes steak and lobster with a higher average customer check, Zackfia said.