Restaurant companies’ third-quarter 2022 performances are likely to have been negatively impacted by high wages, food cost inflation and dismal traffic. The rise in meat and seafood costs, including ribs, prime rib, ribeye and tri-tip, and salmon, is hurting the industry.

However, restaurant operators’ third-quarter 2022 top lines are likely to have benefited from digital innovation and sales-building endeavors. The industry participants are also expected to have benefitted from partnerships with delivery channels and digital platforms. Increased off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks, are likely to have aided the top lines.

Most restaurant operators have initiated testing ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service has been steadily garnering positive customer feedback.

Per the latest Earnings Trend report, the Zacks Retail-Wholesale sector’s third-quarter earnings are expected to decline 8.3% from the year-ago period’s reported figure. The previous quarter recorded a 20.5% decrease. The sector’s revenues are projected to increase 6.3%, whereas it reported 7.4% in the previous quarter. However, margins are expected to decline 0.7% year over year.

Let us discuss the factors that are anticipated to have played key roles in shaping the performance of the restaurant stocks this earnings season.

How to Make the Right Pick?

Given the wide range of companies in this space, the task is by no means easy. While it is impossible to be sure of the outperformers, our proprietary methodology — a positive Earnings ESP along with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is our proprietary methodology for identifying stocks with high chances of delivering a surprise in their upcoming earnings announcements. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with the above-mentioned combination, the chances of a positive earnings surprise are as high as 70%.

Our Picks

Here are a few restaurant companies that investors can check out.

Chipotle Mexican Grill, Inc. (CMG Quick QuoteCMG - Free Report) is scheduled to report third-quarter 2022 results on Oct 25. CMG currently has a Zacks Rank #2 and an Earnings ESP of +2.11%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chipotle's third-quarter performance is likely to have benefitted from its digital efforts, Chipotlane add-ons and restaurant openings. In the previous quarter, the company initiated customer-facing pin pads, offering faster and contact-free payment options. It emphasized exploring an automated real-time kitchen production system that ensures high-quality food to support customer needs. It made progress with respect to updating its POS hardware and DML enhancements to boost guest experience and accuracy. With increased focus on in-flight programs, the initiatives are likely to have aided the company’s performance in the to-be-reported quarter.

The Zacks Consensus Estimate for CMG’s third-quarter 2022 earnings is pegged at $9.09 per share, suggesting growth of 29.5% from $7.02 reported in the prior-year quarter.

Jack in the Box Inc. (JACK Quick QuoteJACK - Free Report) is scheduled to report fiscal fourth-quarter 2022 results on Oct 22. JACK currently has a Zacks Rank of 3 and an Earnings ESP of +4.88%.

JACK’s fourth-quarter top line is likely to have benefited from the emphasis on initiatives like menu innovations, delivery channels and marketing strategies. The Zacks Consensus Estimate for fourth-quarter fiscal 2022 earnings is pegged at $1.34 per share, suggesting a decline of 25.6% from the $1.80 reported in the prior-year quarter.

Texas Roadhouse, Inc. (TXRH Quick QuoteTXRH - Free Report) is slated to report third-quarter 2022 results on Oct 27. TXRH currently has a Zacks Rank #3 and an Earnings ESP of +2.30%.

Texas Roadhouse’s third-quarter 2022 revenues are likely to have benefited from an increase in average weekly sales at the company’s restaurants and comparable restaurant sales growth. However, commodity cost inflation, and wage and other labor inflation are anticipated to have been headwinds.
The Zacks Consensus Estimate for third-quarter 2022 earnings is pegged at 87 cents per share, suggesting a gain of 16% from 75 cents reported in the prior-year quarter.

Wingstop Inc. (WING Quick QuoteWING - Free Report) is scheduled to report third-quarter 2022 results on Oct 26. WING is currently a Zacks #2 Ranked stock. The company has an Earnings ESP of +1.57%.

The Zacks Consensus Estimate for Wingstop’s third-quarter 2022 earnings is pegged at 35 cents per share, suggesting a gain of 20.7% from 29 cents reported in the prior-year quarter.