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Will High Costs Hurt Habit Restaurants' (HABT) Q1 Earnings?

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The Habit Restaurants, Inc. is scheduled to report first-quarter 2018 results on May 2, after market closes.

The company’s various promotional and marketing efforts are supposed to have aided the overall top line in the to-be-reported quarter. Meanwhile, higher costs might dent the company’s earnings in the first quarter.

Shares of the company have lost 48.4% in the past year, underperforming the industry’s gain of 3.5%.



 

Let’s see how things are shaping up for the to-be-reported quarter.

Encouraging Top-Line Picture

Habit Restaurants’ differentiated brand positioning, successful marketing and culinary innovation are the major revenue drivers. The Zacks Consensus Estimate for first-quarter revenues is pegged at $93.43 million, reflecting 18.8% year-over-year growth.

Even though the company witnessed a decline in comps by 0.1% in 2017, we believe that excellent operational execution, high quality limited time offers, targeted digital strategies and innovative media partnerships might drive traffic in the first quarter and in turn comps. Subsequently, the consensus estimate for first-quarter comps is projected to inch up 0.1% as against the prior reported quarter’s comps decline of 1%.

High Costs Likely to Dent Earnings

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 first-quarter profits.

Incremental investments in marketing programs, and promotional activity as well as consistently high labor expenses are also expected to weigh on margins. Further, at its fourth-quarter conference call, management noted that commodity costs, particularly beef, chicken and produce might remain high. This, in turn, could pressurize margins in the to-be-reported quarter.

Subsequently, the consensus estimate, for the quarter under review’s earnings of 3 cents per share, marks a deterioration of 66.7% year over year.

Our Quantitative Model Does Not Predict a Beat

Habit Restaurants 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 -11.76%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The stock currently 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.

 

The Habit Restaurants, Inc. Price and EPS Surprise

 

 

Stocks to Consider

Here are some companies in the restaurant space, which per our model have the right combination of elements to post an earnings beat this quarter.

Brinker (EAT - Free Report) has an Earnings ESP of +0.69% and carries a Zacks Rank #3. The company is slated to report first-quarter results on May 1, before the market opens. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wingstop (WING - Free Report) carries a Zacks Rank #3 and has an Earnings ESP of +5.66%. Wingstop is scheduled to release first-quarter results on May 3, after the market closes.

Jack in the Box (JACK - Free Report) has an Earnings ESP of +0.58% and carries a Zacks Rank #3. The company is expected to report quarterly results on May 15.

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