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Will Habit Restaurants (HABT) Disappoint in Q2 Earnings?

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The Habit Restaurants, Inc. (HABT - Free Report) is set to report second-quarter 2017 results on Aug 2, after market close.

Last quarter, this casual restaurant company pulled off a positive earnings surprise of 12.50%. Moreover, the trailing four-quarter average earning surprise is at a positive 15.21%.

Let’s see what is in store this quarter.

The Habit Restaurants, Inc. Price and EPS Surprise

 

Factors at Play

Habit Restaurants offers specialty sandwiches, fresh salads, shakes and malts. Notably, the previous quarter marked its 53rd consecutive year-over-year growth in comps. The company expects its differentiated brand positioning, successful marketing and culinary innovations, excellent operational execution, high quality limited time offers, targeted digital strategies and innovative media partnerships to help in retaining brand loyalty and thereby drive comps in the to-be-reported quarter.

Also, Habit Restaurants recently updated its menu with three new items, which are likely to drive sales.

Meanwhile, though the company is looking to expand its presence via new unit openings, an increase in expenses related to pre-opening costs and the development and management of new units might dent the quarter’s profits.

Incremental investments in marketing programs and promotional activity as well as consistently higher labor expenses are also expected to weigh on margins. Furthermore, at its first-quarter conference call, management noted that commodity costs, particularly beef and produce were starting to trend upwards and might remain elevated in the short term. This, in turn, could pressurize margins in the second quarter.

Moreover, a choppy sales environment in the overall restaurant space might limit revenue growth.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Habit Restaurants 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. That is not the case here, as you will see below.

Zacks ESP: Habit Restaurants has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 6 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Habit Restaurants carries a Zacks Rank #4 (Sell).

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

Stocks to Consider

Here are some companies in the broader Retail-Wholesale sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Alibaba Group Holding Limited (BABA - Free Report) has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lumber Liquidators Holdings, Inc. (LL - Free Report) has an Earnings ESP of +75% and a Zacks Rank #2.

YUM! Brands, Inc. (YUM - Free Report) has an Earnings ESP of +1.64% and a Zacks Rank #3.

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