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Key Predictions for Q4 Earnings Reports of CMG, DNKN & BWLD

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We are in the thick of the Q4 earnings season with 251 of the S&P 500 members having already reported their quarterly numbers (as of Feb 2).

The Picture Thus Far

Per the Earnings Preview, total earnings for these 251 companies are up a solid 16% from the year-ago quarter on a 10.5% rise in revenues. While 64.9% of these companies have beaten estimates on both counts, 80.5% surpassed earnings estimates and 78.1% exceeded top-line expectations.

Restaurant Players Have Impressed So Far

We note that performance of restaurant players has been decent so far this earnings season. Among the restaurant stocks that have already reported, McDonald's Corp. MCD and Darden Restaurants DRI posted robust fourth-quarter 2017 and fiscal second-quarter 2018 results, respectively, beating earnings and revenue estimates. Meanwhile, Brinker International, Inc. EAT posted mixed second-quarter fiscal 2018, with earnings surpassing the Zacks Consensus Estimate but revenues lagging the same.

The year 2017 saw the space grappling with rising costs, weak comps, higher restaurant prices, consumer spending uncertainty on dining out, decline in at-home food costs, market saturation and shifting preference of consumers.

However, the industry remains steady, thanks to the counter-strategies of some innovative operators. These include various sales building and cost cutting efforts, franchisee-based business models, loyalty programs and most importantly increased usage of technology.

The Broader Sector Looks Strong

The restaurant industry belongs to the broader Retail-Wholesale sector, which is expected to deliver strong performance this earnings season. Overall, fourth-quarter earnings for the sector are expected to be up 6.6% year over year, with revenues anticipated to rise 8.8%.

Given this backdrop, let’s see what’s in store for three industry players slated to report fourth-quarter 2017 results.

The Zacks Consensus Estimate for Buffalo Wild WingsBWLD for earnings and revenues is pegged at $1.56 per share and $543 million, respectively. The estimates, when compared with the year-ago quarter’s actual figures, indicate growth of 79.3% for earnings and 9.9% for revenues. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s quarterly revenues are likely to benefit from sales initiatives such as game day offers and take up programs for holiday parties, while earnings are likely to increase with continuous operational improvement and cost saving efforts.

Buffalo Wild Wings, Inc. Price and EPS Surprise

The Zacks Consensus Estimate for Dunkin' Brands Group DNKN fourth-quarter revenues is pegged at $223 million, reflecting 3.2% growth from the year-ago quarter’s actual figure. The consensus mark for earnings is pegged at 63 cents, reflecting 1.6% declinefrom the year-ago quarter’s actual figure.

We expect the company’s top line to benefit from system-wide sales growth backed by franchise fees and royalty income, and strong rental income. License fees related to Dunkin' Donuts K-Cup pods and ready-to-drink bottled iced coffee, along with increased transfer fee income are also expected to strengthen the top line.

The bottom line, however, is likely to stay under pressure as the company anticipates roughly $6 million of incremental interest expense from a recent debt deal and a higher effective tax rate resulting from reserve of foreign tax credit carry-forwards in the third quarter. The stock has a Zacks Rank #2.

Dunkin' Brands Group, Inc. Price and EPS Surprise

Quick-casual and fresh Mexican food restaurant chain operator Chipotle Mexican Grill’s (CMG - Free Report) results are likely to benefit from continued focus on food safety, simplification of restaurant operations, menu innovation, enhancing digital orders and increased brand marketing. The Zacks Consensus Estimate for earnings and revenues is pegged at $1.33 per share and $1.1 billion, respectively.

The earnings estimates, when compared with the year-ago quarter’s actual figure, indicate a remarkable increase of 78 cents. Revenue estimates indicate 8.1% year-over-year growth.

The company carries a Zacks Rank #3 (Hold).

Chipotle Mexican Grill, Inc. Price and EPS Surprise

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