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Shake Shack's (SHAK) Q3 Earnings Report: What to Expect?

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Shake Shack Inc. (SHAK - Free Report) is scheduled to report third-quarter 2016 numbers on Nov 9, after market close.

Last quarter, it posted a 7.69% positive earnings surprise. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 31.69%.

Let’s see how things are shaping up for this announcement.

Factors Likely to Influence this Quarter

Shake Shack’s cult following and successful expansion into various cities around the world has been driving traffic, which in turn is leading to higher comps. Also, menu expansion and innovation, coupled with limited time offerings are boosting comps. We expect the trend to have continued in the to-be-reported quarter.

Moreover, Shake Shack is poised to cash in on the diversification its licensing business brings, the resource-light and efficient model, the low-risk royalty stream, and the opportunity to reach places that it could not reach domestically.

However, elevated labor and pre-opening costs are adding to the expenses, which might hurt profitability and margins in the quarterly results. Additionally, volatility in the Middle-East oil markets and unfavorable foreign exchange translations remain potent headwinds for the top line.

SHAKE SHACK INC Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively show that Shake Shack is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks ESP: Shake Shack has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 15 cents.

Zacks Rank: Shake Shack has a Zacks Rank #3 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Wendy’s Company (WEN - Free Report) has an Earnings ESP of +10% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dick’s Sporting Goods, Inc. (DKS - Free Report) has an Earnings ESP of +2.38% and a Zacks Rank #2.

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +15.38% and a Zacks Rank #3.

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