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Will Robust Sales Drive Shake Shack's (SHAK) Q2 Earnings?

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Shake Shack Inc. (SHAK - Free Report) is scheduled to report second-quarter 2018 financial numbers on Aug 2, after the market closes.

In the last reported quarter, the company’s earnings have surpassed the Zacks Consensus Estimate by 85.7%. The bottom line also outpaced the consensus mark in each of the trailing four quarters, with an average beat of 56%.

What to Expect?

The question lingering in investors’ minds now is whether Shake Shack will be able to deliver a positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for second-quarter earnings is pegged at 17 cents, lower than 20 cents in the year-ago quarter. Of late, the company’s earnings estimates have been stable. In the first quarter of 2018, the company’s witnessed earnings growth of 30% on a year-over-year basis.

The Zacks Consensus Estimate for revenues is $110.2 million, up 20.7% from the prior-year actual figure.

Let’s delve deeper to find out how the company’s top and bottom line will shape up this earnings season.

Factors at Play

Shake Shack’s top line has been constantly improving over the last few quarters. The momentum is expected to continue in the second quarter as well. The company’s revenues in the soon-to-be reported quarter might have been driven by sharp increase in Shack sales. Notably, the Zacks Consensus Estimate for Shack sales stands at $107 million, reflecting a year-over-year increase of 21.6%. Shake Shack’s cult following and successful expansion into various cities across the globe are likely to boost Shack sales and continue driving traffic.

Meanwhile, we expect the company to continue cashing on the diversification of its licensing business, the resource-light and efficient model, the low-risk royalty stream and the opportunity to reach places that it could not reach domestically. The Zacks Consensus Estimate for licensing revenues in the second quarter is pegged at $3.29 million, almost flat year over year.

On the earnings front, the company is likely to witness a decline due to higher labor and pre-opening costs and unfavorable foreign exchange translations. Also, its G&A expenses are likely to increase owing to investment in Project Concrete. For 2018, Shake Shack expects G&A expenses to be between $49 million and $51 million. Moreover, pre-opening costs are projected to lie between $12 million and $13 million.

Shake Shack, Inc. Price, Consensus and EPS Surprise

What Does the Zacks Model Unveil?

Our proven model does not show that Shake Shack is likely to beat earnings estimates 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Shake Shack has an Earnings ESP of -7.84%. Although, the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks to Consider

Here are some companies in the Restaurant space that have the right combination of elements to deliver an earnings beat this quarter.

Restaurant Brands (QSR - Free Report) has an Earnings ESP of +1.17% and a Zacks Rank #3. It is scheduled to release second-quarter results on Aug 1, before the market opens. You can see the complete list of today’s Zacks #1 Rank stocks here.

With a Zacks Rank #2 (Buy), Wendy’s (WEN - Free Report) has an Earnings ESP of +1.59%. The company is slated to report its quarterly results on Aug 7, after market close.

Brinker (EAT - Free Report) has an Earnings ESP of +1.47% and a Zacks Rank of 3. The company is expected to report quarterly results on Aug 9.

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