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Soft Comps to Hurt Noodles & Company (NDLS) in Q1 Earnings
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Noodles & Company (NDLS - Free Report) is scheduled to report first-quarter 2018 numbers on May 10, after market close.
Over the past few quarters, the company has been bearing the brunt of soft consumer demand and declining comps. Despite its major sales building initiatives like streamlining of menu and innovation, introduction of new cooking procedures, effective marketing strategy, increased focus on the off-premise business and investments in technology-driven initiatives like digital ordering, it has recorded negative comps in each of the four quarters in 2017. We believe that the company’s first quarter will also reflect its sluggish sales and high costs from restaurant operations might have had dented earnings in the to-be-reported quarter.
However, shares of Noodles & Company have rallied 30% in the past year, outperforming the industry’s gain of 5.1%.
Let’s take a look at how the company’s first quarter will shape up.
Top Line Likely to Remain Under Pressure
The past year has been difficult for Noodles & Company as revenues declined 6.4% in 2017 compared with 2016. The closing down of company-operated restaurants primarily affected its revenues. The company also believes that its first-quarter revenues will be modestly grim, due to weather-related issues in the upper Midwest and Mid-Atlantic regions.
We expect a sluggish sales scenario to have continued in the first quarter as well. The Zacks Consensus Estimate for the quarter’s net revenues is pegged at $109.1 million, suggesting a 6.6% year-over-year decline.
Meanwhile, as the overall restaurant industry is treading on the path to a slow but steady recovery, first-quarter system-wide comps decline of nearly 1% for the company is expected to compare favorably with the prior-year quarter’s fall of 2.5%. In 2017, system-wide comps fell 2.4%.
Also, the consensus estimate projects company-owned and franchised comps to decline 1% and 0.5%, respectively, in the first quarter. Notably, in 2017, company-owned comparable sales fell 2.7% and franchise comps were down 0.5%.
Tricky Bottom-Line Picture
While high costs from restaurant operation and increased labor expenses might have been a potential threat to Noodles & Company’s earnings, we note that the company has been undertaking the task of closing underperforming restaurants, which will improve margins. In fact, the company has successfully cut down its operating expenses by drastically lowering pre-opening costs. For the full year of 2017, total operating expenses declined 11.7% year over year and the favorable trend is expected to have continued in the first quarter as well.
Subsequently, the consensus estimate predicts a loss of 2 cents in the first quarter, comparing much favorably with a loss of 8 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 -77.78%. 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.
Here are some stocks from the Retail-Wholesale sector, which according to our model, possess the right combination of elements to post an earnings beat.
Walmart (WMT - Free Report) holds a Zacks Rank #3 and has an Earnings ESP of +2.46%. The company is scheduled to report quarterly results on May 17.
Restoration Hardware (RH - Free Report) has an Earnings ESP of +3.86% and a Zacks Rank #3. The company is anticipated to report quarterly results on Jun 7.
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Image: Bigstock
Soft Comps to Hurt Noodles & Company (NDLS) in Q1 Earnings
Noodles & Company (NDLS - Free Report) is scheduled to report first-quarter 2018 numbers on May 10, after market close.
Over the past few quarters, the company has been bearing the brunt of soft consumer demand and declining comps. Despite its major sales building initiatives like streamlining of menu and innovation, introduction of new cooking procedures, effective marketing strategy, increased focus on the off-premise business and investments in technology-driven initiatives like digital ordering, it has recorded negative comps in each of the four quarters in 2017. We believe that the company’s first quarter will also reflect its sluggish sales and high costs from restaurant operations might have had dented earnings in the to-be-reported quarter.
However, shares of Noodles & Company have rallied 30% in the past year, outperforming the industry’s gain of 5.1%.
Let’s take a look at how the company’s first quarter will shape up.
Top Line Likely to Remain Under Pressure
The past year has been difficult for Noodles & Company as revenues declined 6.4% in 2017 compared with 2016. The closing down of company-operated restaurants primarily affected its revenues. The company also believes that its first-quarter revenues will be modestly grim, due to weather-related issues in the upper Midwest and Mid-Atlantic regions.
We expect a sluggish sales scenario to have continued in the first quarter as well. The Zacks Consensus Estimate for the quarter’s net revenues is pegged at $109.1 million, suggesting a 6.6% year-over-year decline.
Meanwhile, as the overall restaurant industry is treading on the path to a slow but steady recovery, first-quarter system-wide comps decline of nearly 1% for the company is expected to compare favorably with the prior-year quarter’s fall of 2.5%. In 2017, system-wide comps fell 2.4%.
Also, the consensus estimate projects company-owned and franchised comps to decline 1% and 0.5%, respectively, in the first quarter. Notably, in 2017, company-owned comparable sales fell 2.7% and franchise comps were down 0.5%.
Tricky Bottom-Line Picture
While high costs from restaurant operation and increased labor expenses might have been a potential threat to Noodles & Company’s earnings, we note that the company has been undertaking the task of closing underperforming restaurants, which will improve margins. In fact, the company has successfully cut down its operating expenses by drastically lowering pre-opening costs. For the full year of 2017, total operating expenses declined 11.7% year over year and the favorable trend is expected to have continued in the first quarter as well.
Subsequently, the consensus estimate predicts a loss of 2 cents in the first quarter, comparing much favorably with a loss of 8 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 -77.78%. 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
Noodles & Company Price and EPS Surprise | Noodles & Company Quote
Stocks to Consider
Here are some stocks from the Retail-Wholesale sector, which according to our model, possess the right combination of elements to post an earnings beat.
Jack in the Box (JACK - Free Report) has an Earnings ESP of +2.91% and holds a Zacks Rank #3. The company is expected to report quarterly results on May 15. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Walmart (WMT - Free Report) holds a Zacks Rank #3 and has an Earnings ESP of +2.46%. The company is scheduled to report quarterly results on May 17.
Restoration Hardware (RH - Free Report) has an Earnings ESP of +3.86% and a Zacks Rank #3. The company is anticipated to report quarterly results on Jun 7.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>