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Dining out: July marks 3rd month of recovery for US restaurants

Sales and employment at U.S. restaurants posted another month of improvement in July but at rates below previous months as the industry remains challenged by the pandemic and economic crisis.

July sales fell about 19% from the year-ago period, or $13 billion lower than pre-coronavirus levels in January and February, the National Restaurant Association said in an Aug. 14 report. The July sales decline was another monthly improvement after the sector's sales declined a revised 22.4% year over year in June and fell 38.1% year over year in May.

Shares of most of the biggest publicly traded restaurant companies rose in the month ended Aug. 13 as the S&P 500 approached its record closing high.

Restaurants are getting more delivery and takeout orders and drumming up what business they can with outdoor seating. Still, the industry's troubles are far from over, Calvin Schnure, senior economist at Nareit, said in an interview.

"You're not even talking about a glass half full," Schnure said. "My real concern is that this is not sustainable."

Slowing sales growth

Sales for food services and drinking places declined 18.9% in July from the year-ago period to a seasonally adjusted $52.47 billion, according to U.S. Census Bureau advance monthly estimates released Aug. 14. Sales for food services and drinking places grew for the third month in a row but remained below the pre-pandemic figure in February of $65.36 billion.

All retail sales grew 2.7% from the year-ago period in July to $535.98 billion, which was less than the 3.5% growth posted in July 2019.

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Restaurant sales in July rose 5% from the previous month, but were substantially lower than the stronger gains of May and June, the National Restaurant Association said in an Aug. 14 statement. The slowdown was not surprising after some states paused reopening plans in July, the group said.

"To be sure, consumer spending in restaurants continues to trend in a positive direction, despite all of the uncertainty surrounding the virus and the economy," the National Restaurant Association said. "After the initial bounce in May and June, July's sales results are a reminder that the restaurant industry's road to recovery will be long and uneven."

Comparable sales growth at restaurants is improving, albeit slowly, according to an Aug. 14 report by Black Box Intelligence. Quick-service and fast-casual chains continue to outperform full-service restaurants by a "very wide margin," the report said.

The number of seated diners in the U.S. was down 55.2% on Aug. 13 from a year ago, the restaurant reservation platform OpenTable reported. The U.S. reported 51,443 new cases of coronavirus Aug. 13, according to Johns Hopkins University.

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Traffic patterns vary by state, according to OpenTable. In Hawaii, seated diners fell 93.1% on Aug. 13 compared to the same day a year ago, while Rhode Island reported a 4.1% decline for the same day versus a year earlier after posting several days of gains.

Weaker job gains

Food services and drinking places added 502,000 jobs in July for a seasonally adjusted total of 9.7 million, a 19.7% decline year over year, according to the U.S. Bureau of Labor Statistics. Total nonfarm industries added 1.8 million jobs for a total of 139.6 million.

"It's trending in the right direction," Arthur Dong, professor of the practice at Georgetown University's McDonough School of Business, said in an interview. "Are they out of the woods yet? By no stretch of the imagination."

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July marked the third month in a row the restaurant industry added jobs to its payrolls but reflected a slowing pace of the economic recovery. In May and June, restaurants added 1.5 million jobs each month as economies reopened, a trend cut short by surging coronavirus cases and subsequent state reclosings. Food service and drinking places continue to trail the sector's pre-pandemic job figure of 12.3 million employees for February.

"Looking forward, restaurant job growth will likely be uneven in the coming months, due to the uncertainty associated with spiking COVID-19 case levels and the potential for renewed restrictions in many parts of the country," the National Restaurant Association said in an Aug. 7 report.

Rising share prices

Fourteen of the 15 largest publicly traded U.S. restaurants posted stock gains in the month ended Aug. 13, according to S&P Global Market Intelligence. More broadly, the S&P Composite 1500 Restaurants subindex rose 10.5% and the S&P Composite 1500 index rose 7.3%.

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Shares of Texas Roadhouse Inc. rose 24.3% in the month ended Aug. 13, the biggest gain for the period. The company's second-quarter EPS more than doubled analysts' expectations as reopened dining rooms led to strong comparable sales recovery in June, BMO Capital Markets analyst Andrew Strelzik said in an Aug. 3 report.

Shares of Domino's Pizza Inc. fell 0.6% in the month ended Aug. 13 but have grown 35.8% year-to-date, outpacing the S&P 500's 4.4% growth, according to Market Intelligence data.