CA-based restaurant operator, DineEquity, Inc. (DIN - Free Report) , is scheduled to report second-quarter 2017 numbers on Aug 10, before the market opens.
Notably, the company operates under the Applebee's Neighborhood Grill & Bar and International House of Pancakes (IHOP) brands.
Last quarter, DineEquity came up with a positive earnings surprise of 1.67%. In fact, its earnings met/surpassed the Zacks Consensus Estimate in the last four quarters, with an average beat of 1.68%.
Let’s see how things are shaping up for this announcement.
Factors Likely to Affect Q2 Results
Comps at the IHOP brand have not been encouraging over the last three reported quarters. Nevertheless, DineEquity’s focus on brand innovation as well as its menu improvement strategy and breakfast inspired food offered throughout the day is expected to bring back the trend of positive comps in the to-be-reported quarter.
Moreover, remodeling efforts, increased focus on to-go sales, technological innovation and initiatives to improve guest satisfaction is likely to drive incremental traffic.
Meanwhile, Applebee’s casual dining restaurants are facing stiff competition from fast-food and quick service restaurants. Resultantly, comps have been weak therein in the last few quarters, despite various efforts to reinvigorate the brand.
Nonetheless, we believe, renewed steps taken to revitalize the brand via increased focus on food and culinary innovation, guest satisfaction and marketing are likely to somewhat improve comps. In addition, the company has begun stabilization work for its Applebee’s business and is working with close franchisee collaboration to improve the brand’s performance.
Meanwhile, an increase in expenses related to sales initiatives may dent the quarter’s profits. Incremental investments in marketing programs and promotional activity to combat competition are also expected to weigh on margins. Also, the continuing choppy sales environment in the overall restaurant space might limit revenue growth.
Our proven model does not conclusively show earnings beat for DineEquity 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 elaborated below.
Zacks ESP: DineEquity has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.20. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: DineEquity has a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.
Note that we caution 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 in the broader Retail-Wholesale sector, 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.
The Gap, Inc. (GPS - Free Report) has an Earnings ESP of +3.85% and a Zacks Rank #2.
Nordstrom, Inc. (JWN - Free Report) has an Earnings ESP of +3.28% and a Zacks Rank #3.
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