Einstein's 1Q Earnings Beat, Rev Misses

Zacks

Einstein Noah Restaurant Group Inc.’s (BAGL) first-quarter fiscal 2013 adjusted earnings of 23 cents per share beat the Zacks Consensus Estimate by a penny and grew 9.5% from the year-ago level of 21 cents. An improvement in the top line coupled with lower general and administrative and interest expenses facilitated bottom-line growth.

Total revenue grew 1.2% year over year to $106.1 million but missed the Zacks Consensus Estimate of $109.0 million. The year-over-year upside in revenues can be attributed to a 0.8% increase in company-owned restaurant sales, a 5.7% jump in manufacturing and commissary revenues, and flat franchise and license related revenues.  

However, system-wide comparable store sales decreased 0.6% as anemic economic conditions restricted consumer discretionary spending. Additionally, a calendar shift in the Easter holidays also hurt comps in the quarter.

Restaurant gross margin contracted 290 bps year over year to 16.5%, primarily due to increased costs related to the implementation of the every-day value menu.

Store Update

The company exited the first quarter of 2013 with 822 restaurants, out of which 461 were company owned, 99 were franchised and 262 were licensed.

Guidance

For fiscal 2013, the company plans to open 60–80 restaurants. Capital expenditures are estimated in a range of $20–$22 million. Commodity inflation for the full year is expected to remain in the 2%–3% range.

Our Take

Lakewood, Colo.-based Einstein Group's performance has been faltering in the last few quarters. Its revenues have fallen short of the Zacks Consensus Estimate for the sixth consecutive quarter.

Based on recent performances, we remain cautious on the stock at the current level. Moreover, stiff competition and weak consumer confidence amid a sluggish economy support our view on the stock.

Einstein Noah Restaurant Group currently carries a Zacks Rank #5 (Strong Sell). Other players in the same industry, which look attractive at current levels include The Wendy’s Co. (WEN), The Cheesecake Factory Inc. (CAKE) and Burger King Worldwide Inc. (BKW). While Wendy’s carries a Zacks Rank #1 (Strong Buy), Cheesecake Factory and Burger King carry a Zacks Rank #2 (Buy).
 

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