Score one for chain restaurants. TDn2K’s latest Black Box data, released Friday, gives operators plenty to be optimistic about, said Victor Fernandez, vice president of insights and knowledge.

“The sector is going through its longest period of sales expansion for comparable stores since 2015,” he said. We have been seeing signs that point toward a longer-term recovery as well.”

After a chilly forecast in February, where same-store sales declined 0.6 percent, snapping a run of eight consecutive positive months, growth returned to positive territory in March. Comps lifted 1.2 percent industry-wide and are up 1 percent in the first quarter (average growth by month was 0.8 percent during 2019s first three months). As Fernandez pointed out, the restaurant industry has now posted four consecutive quarters of positive same-store sales growth for the first time since 2015.

The results also show, TDn2K said, February’s dip was an anomaly you can chalk up to Mother Nature. If you exclude February and its bad weather, every month since June of 2018 has posted positive same-store sales. Also worth noting: the March lift wasn’t measured against a rough period last year, as many of the past positive results have been.

“March’s strong sales growth did not come at the expense of a soft comparable month from 2018,” Fernandez said. “Last year, March sales grew 0.6 percent. This means same-store sales grew by 1.8 percent when compared with March of 2017.”

“The industry is finally posting consistent positive growth on a two-year basis,” he added. “Since October, all months have achieved positive two-year sales growth with the exception of February. Before that period, restaurants went through 22 consecutive months in which sales were not able to top where they were two years before.”

That last note might be the biggest indicator. The chain industry was on a nearly two-year slide.

What’s changing? There are several factors, including the rise of additional revenue channels, like off-premises. But there’s also, from a macroeconomic standpoint, some fresh factors. Tight labor markets have accelerated wage increases and consumers remain optimistic about their conditions.

The industry is shrinking to a more comfortable base. Net growth in the number of restaurant locations has slowed in recent years, TDn2K said, especially among fast casual and casual-dining chains.

“This has undoubtedly helped mitigate the oversupply problem the industry has experienced for the past decade,” the company said. “In addition, many chains have been embracing and adapting to changing consumer preferences pointing towards off-premises consumption of food as a growing trend and an important source of potential restaurant sales growth.” The winners are realizing there’s growth beyond the lunch and dinner dayparts.

Traffic is still falling

The notion transactions are dropping is not a new one. This negative traffic conversation has been mounting for months now, if not years. It bears asking whether or not this steady decline is similar to the drop in unit count. Will it dissipate until it settles, and become a new normal for chain operators?

In the meantime, restaurants are relying on customers to spend more than they did a year ago to push top-line results. Growth in average check was 3 percent, year-over-year, during March. The pace at which guest checks are growing has also been accelerating, year-over-year, TDn2K said. On average, guest checks grew 3 percent since the fourth quarter of 2018. For perspective, the average was 2.4 percent for the first three quarters of last year.

“This may be a consequence of accelerating wage growth and a consumer that is relatively more confident and willing to spend,” TDn2K said.

This is critical because traffic shows no signs of rebounding. Same-store traffic declined 1.8 percent in March. Growth for the first quarter dropped 2 percent, year-over-year.

“Consumer confidence remains high and there was a rebound in vehicle sales, signs that the worst may be behind us,” said Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, in a statement. “When it comes to consumption, though, one concern has unexpectedly arisen: wage growth moderated recently. However, the pressures on compensation remain great given the low unemployment rate and the continued solid hiring. Indeed, additional increases in minimum wages have been announced. The likelihood is that the slowdown in income growth was temporary.”

“The outlook is for continued good income growth the rest of the year, which should translate into solid retail sales and restaurant spending,” he added. “The only risk to this positive outlook is receding world growth. If the trade issues are not resolved soon, the faltering global expansion would restrain U.S. growth. However, the expectation is that an acceptable trade agreement with China will be announced, removing the greatest risk to U.S. growth.”

Of the 196 markets measured by Black Box Intelligence, 147 (75 percent) achieved positive same-store sales growth in March. All 11 regions of the country were in the green, which has only happened four times during the last three years—all within the last 12 months.

The Southeast was the strongest region with sales of 2.87 percent and traffic of negative 0.38 percent. Florida was the weakest at .03 percent sales and negative 3.21 percent traffic.

Spread the wealthy

Most industry segments achieved positive same-store sales growth in March. The limited-service industry topped the list. Quick service and fast casual reported the strongest growth, followed by casual dining and upscale casual.

Only fine dining and family dining declined in March. TDn2K, though, credits the dip to Easter falling in April this year as opposed to the last week of March in 2018. Last year’s results benefitted from the jump in sales Easter brings.

Fine dining, even with four weeks of positive sales growth in the month, was driven into negative territory by the downturn of the holiday shift. “But fine-dining concepts shouldn’t worry too much about March’s results; it was the top performing segment based on same-store sales growth during the first quarter of 2019,” TDn2K said.

Can’t forget about labor

While favorable economic conditions translate to growing sales for restaurants, they also create a labor market that makes it increasingly difficult for brands to remain fully staffed. According to People Report data from TDn2K, 40 percent of restaurant companies expressed increased difficulty in finding and hiring qualified hourly employees during the first quarter of 2019 compared with the previous quarter. Fifty-one percent of companies said they had increased difficulty finding managers as well.

“It is important to keep in mind these recruiting difficulty numbers are compounding rapidly. The percentage of companies reporting increased challenges hiring employees and managers has been as high as 70 percent in recent quarters. So what most restaurants are really saying is, it’s getting harder to find enough qualified employees today compared with the previous quarter, even though it was pretty hard to find them back then too,” Fernandez said.

Turnover is a serious culprit. Rolling 12-month turnover rates increased once again for restaurant managers and hourly employees during February.

“The importance of service cannot be overstated as a key differentiating factor for top performing restaurant brands per ongoing TDn2K analysis. We constantly see a strong pattern in which adequate staffing enables a service experience that translates into improved sales and traffic,” Fernandez said.