Among the restaurant operators, the winners will win big and the losers will lose hard. Heading into peak earning season for the restaurant group, are your restaurant stocks in danger of seeing large losses?
Here is a list of three restaurant stocks that have recently disappointed Wall Street and may be doomed to do so again in their upcoming earnings print.
Dunkin Brands Group Inc (DNKN)
Dunkin Brands (DNKN) stock is currently trading near its 52-week low of $36.44 and lost all momentum after the company’s investor day presentation back in early October. At that time, management guided DNKN full-year earnings expectations to a range of $1.87 to $1.91 per share – short of the $1.92 per share Wall Street analysts were expecting.
Dunkin Brands’ third quarter earnings on Oct. 22 didn’t reassure investors that they can see meaningful upside moving forward. Dunkin reported that its U.S. comps rose just 1.1% in the quarter, and management’s comments during the post earnings conference call didn’t reassure investors that an improvement can be seen in the fourth quarter, giving Dunkin Brands’ stock one less catalyst.
Paul Carbone, Dunkin Brands Chief Financial Officer, said: “We did say comps got sequentially softer throughout the quarter and then where you ended like past quarters we are not going to give insight into the current quarter business.”
DNKN will report its fourth-quarter results on Feb. 4 before the market open.
Noodles & Co (NDLS)
Remember when Noodles’ stock was Wall Street’s darling after doubling in value in its IPO debut?
Investor sentiment has certainly changed since then. NDLS stock has lost nearly 70% since its epic debut back in late June 2013. In fact, Noodles’ stock began a nearly yearlong decline following is fourth quarter results on Feb. 19, 2015. Investors were spooked by Noodles’ earnings which were lower than expected, 1.3% company-owned same-store sales growth, 1.3% overall guidance and a guidance reduction to its full year earnings.
Noodles’ most recent third-quarter earnings report on Nov. 5, 2015 failed to match an already low market expectation. Noodles reported a breakeven quarter on a per-share basis in the third quarter, falling short of the 6 cents per share Wall Street analysts were expecting. In addition, the company’s restaurant margins declined 320 basis points year-over-year to 15.2%.
Noodles also slashed its guidance for the third time in its earnings report as management warned of continued declines in sales and margins in the fourth quarter.
Noodles has yet to confirm the date for its fourth-quarter results, but it is expected to occur in mid- to late February 2016.
Papa John’s Int’l, Inc. (PZZA)
Papa John’s reported mixed third-quarter earnings back in November 2015. The company earned 45 cents per share on revenue of $389 million, with profits matching estimates and revenues missing the mark of $397 million.
Looking forward to the remainder of the fiscal year, Papa John’s updated its guidance and expects its earnings to be “near the low end” of its prior guidance of $2.04 to $2.10. In addition, management also guided its net unit openings to be “at the low end” of the 2015 guidance range of 220 to 250, with approximately 75% of the net unit growth in international markets — a fact that can further weigh on margins.
Papa John’s has yet to confirm the date for its fourth-quarter results, but it is expected to occur in late February 2016.
Chipotle Mexican Grill, Inc. (CMG)
Chipotle Mexican Grill’s stock has been punished over the past few weeks by what seems like a consistent stream of new E. coli outbreaks.
Given the ongoing headline risk, investors may have forgotten that Chipotle Mexican Grill’s third quarter earnings results on October 20, 2015 were a bit disappointing and management’s outlook certainly didn’t help with the bull case.Chipotle Mexican Grill’s earnings per share were $4.59 in the third quarter, short of the $4.63 per share Wall Street analysts were expecting. Revenue of $1.22 billion was inline with expectations.
During Chipotle Mexican Grill’s post-earnings conference call, management described traffic trends during the first few weeks of October as being “pretty choppy” and trending lower than the 2.6% comp recorded in the third quarter.
CMG stock appeared to have lost all of its momentum after its third quarter results. The company’s comps commentary were disappointing as the Street was expecting an acceleration given the return of carnitas to nearly all of its restaurants.
Chipotle shares have lost a lot since its last earnings report, which might give investors the impression that any future bad news is priced in. They also might be lifted by the fact that the Centers for Disease Control gave Chipotle the all-clear signal. But it is still prudent to keep in mind its business was showing signs of deterioration before the E. coli outbreaks destroyed CMG stock.
Chipotle Mexican Grill will report its fourth-quarter results tonight after market close.
As of this writing, Jayson Derrick did not hold a position in any of the aforementioned securities.
