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Analyst Blog

We are in the last leg of the Q3 earnings season, with 423 of the S&P 500 members having already reported their quarterly numbers (as of Nov 4), per the latest Earnings Preview.

Turning our focus to the widely popular restaurant industry, we note that the performance of the players here has not been enticing.

A soft consumer spending environment in the U.S. restaurant space, which is leading to lower traffic and comps, is turning out to be a major headwind for the top line.

Limited revenue growth has thus hurt the performance of major players in the space like Yum! Brands, Inc.’s (YUM - Free Report) , Chipotle Mexican Grill, Inc. (CMG - Free Report) , Dunkin’ Brands Group (DNKN - Free Report) , Buffalo Wild Wings Inc. (BWLD - Free Report) and others.

A number of restaurateurs are set to report their quarterly numbers on Nov 9. Let’s take a look at what might be in store for these companies:

The Wendy's Company (WEN - Free Report) posted an 11.11% positive earnings surprise in the previous quarter. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 29.01%.

WENDYS CO/THE Price and EPS Surprise

 

WENDYS CO/THE Price and EPS Surprise | WENDYS CO/THE Quote

Notably, our proven model shows that an earnings beat is likely for Wendy’s this time around. This is because the company has the right combination of the two key ingredients – a Zacks Rank #3 (Hold) or better and a positive Earnings ESP – to increase its odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

For third-quarter 2016, the company has an Earnings ESP of +10.00% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for the quarter’s bottom line is pegged at 10 cents. Wendy’s brand transformation initiatives like menu innovation, promotional offers, bold new packaging and increased focus on marketing should drive its results in the to-be-reported quarter. However, reduction in the number of company-operated restaurants might somewhat limit revenue growth (read more: Wendy's: A Beat in the Cards this Earnings Season?).

Shake Shack Inc. (SHAK - Free Report) recorded a positive earnings surprise of 7.69% in the last reported quarter. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in all the last four quarters, with an average beat of 31.69%.

SHAKE SHACK INC Price and EPS Surprise

 

SHAKE SHACK INC Price and EPS Surprise | SHAKE SHACK INC Quote

For the third quarter of 2016, the company has an Earnings ESP of 0.00%, which when combined with a Zacks Rank #3, makes surprise prediction difficult. The Zacks Consensus Estimate for the quarter’s earnings is pegged at 15 cents per share.

Menu expansion and innovation, coupled with limited time offerings are boosting comps. We expect the trend to continue in Q3. However, elevated labor and pre-opening costs are adding to the expenses, which might hurt the quarter’s profitability and margins (read more: Shake Shack's Q3 Earnings Report: What to Expect?).

Popeyes Louisiana Kitchen, Inc.’s (PLKI - Free Report) earnings were in line with the Zacks Consensus Estimate in the previous quarter. The trailing four-quarter average earnings surprise stands at a negative 0.33%.

POPEYES LA KTCH Price and EPS Surprise

 

POPEYES LA KTCH Price and EPS Surprise | POPEYES LA KTCH Quote

For fiscal third-quarter 2016, the company has an Earnings ESP of 0.00%, which makes surprise prediction difficult even though the company has a Zacks Rank #2. The Zacks Consensus Estimate for the quarter’s bottom line is pegged at 54 cents.

Stay tuned! Check back on our full write-up on earnings releases of these stocks.

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