Editor's note: On Thursday, April 17, Chipotle reported its first-quarter earnings before the bell. While the company missed Wall Street expectations on earnings per share, coming in at $2.64 vs. a consensus of $2.86, revenue came in at $904.2 million, exceeding expectations of $873 million. Same-store sales were up a very healthy 13.4%, which beat last quarter's 9.3% gain. On its earnings call, Chipotle CEO Jack Hartung also noted the company would be passing on some of its increased costs to customers for the first time since 2011. The stock was up as much as 5% early Thursday but ended the day down close to 6%.
As the nation's restaurant chains prepare to report their quarterly results in the weeks ahead, sales on the whole are expected to continue growing modestly. However, a few notable standouts should emerge, with Chipotle (CMG), Buffalo Wild Wings (BWLD) and Starbucks (SBUX) among them.
The 25 largest restaurants measured by market capitalization will likely post a 1.8% year-over-year sales increase on average, according to analysts' forecasts available on FactSet. A few are expected to have declines, impacting the overall number. However, those that are set to show decreases are largely companies like Wendy's (WEN) that are selling some corporate-owned stores to franchisees, thereby removing part of the sales that had been counted previously.
All told, the group spans McDonald's (MCD) to Bob Evans (BOBE), covering fast food providers, pizza makers, fast casuals, doughnut shops and sit-down restaurants such as Chili's owner Brinker International (EAT). Most are probably going to report a revenue gain, with Chipotle's 16.7% expected change, from $727 million to $873 million, leading the way. Earnings per share growth at the burrito seller is also likely to be in the double digits, with a 14.3% improvement predicted, right in line with the average for the group.
Chipotle shines again
In terms of same-store sales, Chipotle again shines. Here, it has the strongest increase that's forecast in the group, at 8.8%. At the moment, its closest competition in that regard is Papa John's (PZZA), where 5.8% same-store sales growth is likely. Same-store sales are an important measure of a chain's health because they capture changes in both customer counts and prices being paid at the register.
The projected laggards on this front are few in number, but not entirely surprising considering recent trends. Same-store sales may fall 2.6% at Darden Restaurants (DRI), the owner of Red Lobster and Olive Garden, and 2.5% at DineEquity (DIN), the parent of Applebee's and IHOP. The casual dining sector has struggled mightily for traffic, and there's little reason to expect a significant, sudden change is pending. Panera Bread (PNRA) is another name that's watched its number of transactions fall, and for the upcoming quarter, Wall Street thinks same-store sales will be lower by 0.7%.
The chart below shows the expectations for the four largest U.S. restaurants in terms of revenue. Data are in millions of dollars. Estimates are from FactSet.
Returning to the potential winners, Buffalo Wild Wings is looking at 16.2% sales growth and 35.1% EPS expansion, with a same-store sales improvement of 4.9%. For Starbucks, the coffee chain should see sales advance 10.2%, profits up 14.3% and comparable sales better by 5.7%.
Chipotle, Starbucks and Buffalo Wild Wings represent what's often working well in the restaurant sector — fast-casual names and growth stories. It's not necessarily across the board, as Panera demonstrates, but these are themes that generally have resonated with consumers — and investors. As a result, it makes sense they would be seen among the top growers in the quarter. Shares of both Starbucks and Buffalo Wild Wings are down for the year, at 9.7% and 3%, respectively, so upbeat numbers and outlooks could help reverse that.
There's still ample time for warnings, but for now none of the 25 restaurants surveyed are expected to report a loss for the quarter, even though some might still be dealing with the effects of harsh winter storms. Revenue for the group, made up of sales at company stores, along with any franchise fees, royalties and rent, should total $25.7 billion. The figure excludes sales recorded at franchised locations.
Last year, a bigger set of 42 restaurants Yahoo Finance measured rose an average of 54%, compared with 29.6% for the S&P 500. Thus far this year, the same group is down 2.6%, while the market has slipped 0.3%.
- Consumer Discretionary
- Professional Services
- Buffalo Wild Wings
- earnings per share