Carrols Restaurant Group, Inc. (TAST - Free Report) , a Burger King operator, is facing pressure from rising wages and commodity costs. This Zacks Rank #5 (Strong Sell) is expected to see a 68% drop in earnings this year.
Carrols is the largest Burger King franchisee in the United States with 799 restaurants as of July 2, 2017. It has operated Burger King restaurants since 1976.
Fourth Miss in a Row
On Aug 9, Carrols reported its second quarter results and missed the Zacks Consensus Estimate for the fourth quarter in a row.
Earnings were $0.14 versus the $0.19 estimate.
The good news is that comparable restaurant sales rose 4.6% compared to just a 0.7% comp in the prior year period due to a balance of premium products, value offerings and limited time offers.
However, the company was pressured by rising wage rates, commodity cost inflation, including a spike in beef costs in the quarter, and a higher level of promotional discounting.
Moderate Growth in the Second Half Expected
Carrols believes it can produce moderate growth in comparable store sales in the second half of the year thanks to Burger King promotions.
However, rising wage pressures aren't going anywhere as the job market remains tight. Additionally, the heavily promotional burger environment is unlikely to change either.
One bright spot is the price of beef, wherein the price increases have receded and should be moderate for the rest of the year.
Analysts Bearish for 2017 and 2018
Despite the comparable restaurant gains in the quarter, the analysts are bearish on this year and next.
The 2017 Zacks Consensus Estimate has fallen to $0.13 from $0.28 in the last 90 days.
That's a decline of 68% as the company made $0.40 last year.
Additionally, 2018 doesn't look so great either. The Zacks Consensus has fallen to $0.17 from $0.42 over the last 3 months.
Shares Fall But Are They Cheap?
Carrols shares have fallen 23% year-to-date as the restaurant stocks have fallen out of favor with investors.
But even with this year's sell-off, they're still not cheap.
Carrols trades with a forward P/E of 87.6.
For investors looking for a restaurant stock with earnings growth and the best comparable restaurant comps in the industry, they should check out Domino's (DPZ - Free Report) .
Earnings are expected to grow 34% this year. It's a Zacks Rank #2 (Buy).
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