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What to Expect from Shake Shack (SHAK) in Q2 Earnings?

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Shake Shack Inc. (SHAK - Free Report) is scheduled to report second-quarter 2017 numbers on Aug 3, after the market closes.

Last quarter, the company delivered a positive earnings surprise of 25.00%. In fact, it outpaced/met earnings estimates in the trailing four-quarters with an average beat of 8.17%.

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

Shake Shack, Inc. Price and EPS Surprise

 

Shake Shack, Inc. Price and EPS Surprise | Shake Shack, Inc. Quote

Factors Likely to Influence Q2 Results
    
Shake Shack’s cult following and successful expansion into various cities around the world is likely to continue driving traffic, and in turn lead to higher Same-Shack sales (or comps).

Moreover, various sales and digital initiatives undertaken by the company such as menu extension and innovation, limited time offerings, menu price increase, along with nationwide launch of its mobile ordering Shack App for iOS are likely to further bolster comps in the to-be-reported quarter.

Meanwhile, we expect Shake Shack to continue cashing on the diversification of its licensing business, 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 likely to dent the quarter’s profitability and margins. Additionally, macro economic and political challenges in some of the key operating markets and unfavorable foreign exchange translations could hamper the quarter’s performance. Further, a soft consumer spending environment in the U.S. restaurant space might limit revenue growth and hurt comps.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Shake Shack 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.

Zacks ESP: Shake Shack has an Earnings ESP of -12.50%. This is because the Most Accurate estimate is 14 cents, while the Zacks Consensus Estimate is pegged higher at 16 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Shake Shack carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

Notably, we caution you against stocks with a Zacks Rank #4 or 5 (Sell rated) 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:

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.

J. C. Penney Company, Inc. has an Earnings ESP of +142.86% and a Zacks Rank #3.

The Priceline Group Inc. has an Earnings ESP of +2.31% and a Zacks Rank #3.

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