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Will Soft Comps Hurt Noodles & Company (NDLS) in Q4 Earnings?

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Noodles & Company (NDLS - Free Report) is scheduled to report fourth-quarter 2017 numbers on Mar 14, after market close.

The company has been bearing the brunt of soft consumer demand and declining comps for quite some time now. The challenging restaurant environment in expected to have affected the company’s fourth-quarter traffic and comps as well. Also, this fast-casual restaurant chain’s margins are expected to have been under pressure due to higher costs as well as expenses related to the implementation of strategic initiatives.

However, various sales building initiatives such as streamlining of menu and its innovation, introduction of new cooking procedures, effective marketing strategy, increased focus on the off-premise business, along with investments in technology-driven initiatives like digital ordering remain encouraging.

Notably, shares of Noodles & Company have rallied 95.8% in the past year outperforming the industry’s gain of 15.1%.

Let’s take a look at how the company’s fourth quarter will shape up.

Revenues Likely to Remain Under Pressure

The grim sales scenario in the U.S. restaurant space is affecting Noodles & Company’s revenues of late. In the first nine months of 2017, the company’s net revenues decreased 4% year over year due to closing down of units and declining comps. The negative trend is expected to have continued in the fourth quarter as well. The Zacks Consensus Estimate for the quarter’s net revenues is pegged at $111 million, suggesting a 14.2% year-over-year decline.

Decreased demand and subsequent closing down of restaurants have widely affected the company’s comps. In the first nine months of 2017, system-wide comps declined 3%. Keeping with the negative trend in comps, the consensus estimate for fourth quarter system-wide comparable sales suggests a 2.8% fall.

Also, the consensus estimate projects company-owned and franchised comps to decline 3% and 1.3%, respectively, in the fourth quarter. Notably, in the first nine months of 2017, company-owned comparable sales fell 3.4% and franchise comps were down 0.3%.

Bottom Line Likely to Benefit From the Closure of Underperforming Restaurants

Noodles & Company has been undertaking the task of closing underperforming restaurants that had been consistently hampering its human and financial capital. We believe that the company’s margins are likely to gain from such a move.

Subsequently, the consensus estimate predicts the loss of a penny in the fourth quarter, comparing much favorably with a loss of 4 cents incurred in the year-ago quarter.

Our Quantitative Model Does Not Predict a Beat

Noodles & Company does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The company has an Earnings ESP of 0.0%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The restaurant has a Zacks Rank #3.

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.

Noodles & Company Price and EPS Surprise

Stocks to Consider

Here are a few restaurant stocks, which according to our model possess the right combination of elements to post an earnings beat.

Darden (DRI - Free Report) has an Earnings ESP of +0.87% and a Zacks Rank #2 (Buy). The company is expected to report quarterly numbers on Mar 22, 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brinker (EAT - Free Report) has an Earnings ESP of +1.92% and a Zacks Rank #3. The company is anticipated to report quarterly figures on Apr 24, 2018.

Cheesecake Factory (CAKE - Free Report) has an Earnings ESP of +0.23% and a Zacks Rank #3. The company is expected to report quarterly numbers on May 2, 2018.

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