Unlike the first six months of 2014, the second quarter started off on the right track for the restaurant industry as same-store sales returned to positive growth in July. Four out of the five months since March have posted positive same-store sales growth for the restaurant industry and expectations point towards similar growth rates throughout the rest of the third quarter. This insight is based on data reported by Black Box Intelligence (formerly TDn2K)’s Financial Intelligence (formerly Black Box Intelligence) and Workforce Intelligence (formerly People Report) through The Restaurant Industry Snapshot for July, released this week.

Same-store sales grew by 0.5% in July, which represents a 0.6% increase over June’s results. This is also the first time since March that the industry’s year-over-year growth has improved over the previous months’ results.

“When warmer weather arrived in March the industry’s sales experienced a huge boost. However, every month since then we’ve seen this sales growth slowing down when compared with the previous month. The strong results posted by July, which reversed this trend, seem to be welcome news for the industry”, commented Victor Fernandez, Executive Director of Insights and Knowledge for Black Box Intelligence (formerly TDn2K), parent company of Financial Intelligence (formerly Black Box Intelligence) and Workforce Intelligence (formerly People Report). “Yet this optimism needs to be tempered by the fact that July of 2013 was a bad month for the industry, only one of three months had negative same-store sales last year. This made posting strong sales growth numbers relatively easy during July 2014.”

“The real story behind these numbers can be discovered when looking at the trend over a two year period. Same-store sales growth on a two-year basis was only -0.1% for July, the first time this growth rate has been negative since February 2014 added Wally Doolin, Chairman and Founder of Black Box Intelligence (formerly TDn2K).

Underlying these less than stellar sales results is the fact that the industry keeps losing traffic in comparable stores. Same-store traffic growth was -1.7% in July, which means it remained essentially flat from the results reported for June. These traffic growth numbers reported for June and July are the worst since February.

“The latest traffic results highlight the fact that there are still some major challenges for the restaurant industry. These challenges come from a macroeconomic level in the form of a stubborn unemployment rate, gas prices that are still above $3.50, and disposable income continuing to grow at a very slow pace”, continued Fernandez. “Beyond this there is also the challenge of changing preferences in consumers. As an example, growth in the dinner and late-night day-parts has been declining considerably over the last year and may be a direct indicator that consumers are not favoring traditional chain restaurants when it comes to those critical dining opportunities”. On a two-year basis traffic growth in comparable stores shows how critical the situation is: at -3.7% in July it was the worst month since February.

There are considerable differences in sales performance across different regions of the country highlighting the very different environment regional operators face. The best performing region during July both on a year-over-year and a two-year basis was the Western region with 2.2% and 3.9% same-store sales growth respectively. A very different picture exists in the north east part of the country, where the worst region year-over-year was New York-New Jersey with same-store sales growth of -1.6% and the Mid-Atlantic, which reported a very concerning -4.4% same-store sales growth when compared with July 2012.

Despite the challenges, the industry continues to open new stores as a way of fueling growth. As a consequence, job growth in restaurants as reported by the latest Workforce Intelligence (formerly People Report) data grew to 3.8% year-over-year in June, compared with the 3.5% reported for May. This is the largest increase in jobs registered in over two years. Beyond the added difficulty of ramping up recruiting for these new jobs, restaurant operators are also facing the long-standing trend of rising turnover levels for both unit level managers and hourly employees. Expectations are for the staffing and retention pressures to continue to increase during the third quarter.