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Dining Out: US restaurant sales growth fires up in September

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Dining Out: US restaurant sales growth fires up in September

Sales growth for U.S. bars and restaurants sped up in September following a summer slowdown, according to an analysis by S&P Global Market Intelligence.

Employment at food services and drinking places grew in September as menu prices went up. Meanwhile, share prices for most of the biggest publicly traded restaurants by market capitalization declined in the month ended Oct. 18.

Restaurant sales growth picks up

Food services and drinking places sales grew 4.9% year over year in September to a seasonally adjusted $65.16 billion, according to U.S. Census Bureau advance monthly sales estimates released Oct. 16. The category includes bars, restaurants, caterers and other types of food service vendors.

September's growth marked an acceleration from slower gains in the industry in May through August, though analysts have said strong summer sales growth in 2018 made for tough comparisons. Sales growth at bars and restaurants also outpaced the broader retail sector, which posted a 4.1% increase, according to government data.

Much faster growth at limited-service restaurants supported restaurant sales growth, which should accelerate in the fourth quarter, according to SunTrust Robinson Humphrey analyst Jake Bartlett.

Limited-service restaurants are businesses where consumers typically order and pay for food before eating it. Full-service restaurants are businesses that provide food services to consumers who order and are served while seated.

Revised Census Bureau figures also pinned August sales growth at 2.9% over the previous year on a preliminary basis, up from the 1.1% advance estimate. July's growth also increased to 3.5% in the Census Bureau's revised sales figures for the month.

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More restaurant and bar employees added

Food services and drinking places gained 1,500 employees in September for a seasonally adjusted total of 12.2 million workers, according to the U.S. Bureau of Labor Statistics, or BLS. Total nonfarm industries added 136,000 employees for a total of 151.7 million workers in September and the unemployment rate fell to 3.5%.

Hiring at restaurants and bars continued to outpace the gains of the broader economy.

September's hiring for food services and drinking places marked a 2.2% increase year over year, up from 1.9% in August. Total non-farm hiring, meanwhile, grew 1.4% in September compared to the previous year.

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Cost of dining out increases

The cost of dining out rose steadily in September driven by the full-service meals and snacks category but offset by limited-service meals and snacks.

Prices for the "food away from home" subcategory of the Consumer Price Index, or CPI, grew 3.2% in the year through September, 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 3.2% during the same period, while limited-service meals and snacks rose 3%.

The "food at home" subcategory of the CPI, which refers to average prices at grocery stores, grew 0.6% in the 12 months through September.

Overall inflation for grew 1.7% in the year through September, according to the BLS.

Wendy's adds more eggs to its basket

Most of the largest publicly traded U.S. restaurants posted stock declines in the month ended Oct. 18, while share prices rose for six of these companies, according to Market Intelligence. More broadly, the S&P Composite 1500 Restaurants subindex fell 2.9%.

Darden Restaurants Inc. posted a 13.1% share price decline in the month ended Oct. 18. The company's success at Olive Garden and LongHorn Steakhouse was offset by the continued weakness at Cheddar's, which posted a 5.4% same-store sales decline during its first quarter of fiscal 2020, BTIG analyst Peter Saleh said in a Sept. 19 report following the company's earnings report the same day.

"The polished casual weakness and muted industry commentary seemed to weigh on shares though, offsetting what we viewed as a highly respectable quarter, and the industry challenges likely limit the opportunity for top-line outperformance this year," Saleh said.

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Meanwhile, shares in The Wendy's Co. rose 7.4%, the biggest gain for the top publicly traded restaurant companies during the month. Wendy's on Sept. 9 announced plans to expand its breakfast menu available in more than 300 locations across U.S. in 2020.

"We expect breakfast do be successful, due to strong performance in test markets, operational simplicity and franchisee alignment around the launch," SunTrust's Bartlett said in an Oct. 14 report issued following the company's Oct. 11 investor day.