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Will High Costs Hurt Habit Restaurants' (HABT) Q4 Earnings?

The Habit Restaurants, Inc. HABT is scheduled to report fourth-quarter 2017 results on Feb 28, after market close.

Notably, in the third quarter, a challenging restaurant environment has led to the failure of the company in achieving positive comps. After the 54th consecutive year-over-year growth in comps, Habit Restaurants witnessed a 0.2% decline in third-quarter comps. Moreover, a difficult sales environment is expected to have affected the to-be-reported quarter’s comps, as the Zacks Consensus Estimate for fourth-quarter comps is projected to decline 1.3%.

However, the company’s various sales-building efforts are supposed to aid the overall top line in the to-be-reported quarter. Meanwhile, higher costs might particularly dent the company’s earnings in the fourth quarter.

Habit Restaurants’ shares have lost 32% in the past year, underperforming the industry’s gain of 13.4%.


Let’s see how the company’s top and bottom line will appear in the to-be-reported quarter’s results.

Sales-Building Initiatives Might Aid Revenues

Habit Restaurants’ differentiated brand positioning, successful marketing and culinary innovations help the company build up its top line. The consensus estimate for fourth-quarter revenues is pegged at $85.18 million, reflecting 15.3% year-over-year growth.

We believe that the restaurants’ excellent operational execution, high-quality limited time offers, targeted digital strategies and innovative media partnerships in retaining brand loyalty are the major drivers for the anticipated revenue growth in the fourth quarter. Moreover, the company’s expansion strategy through unit openings is also a major sales driver.

High Costs Likely to Dent Earnings

Though the company is looking to expand its presence via new unit openings, an increase in expenses related to pre-opening costs and the development and management of new units might dent fourth-quarter’s profits.

Incremental investments in marketing programs, and promotional activity as well as consistently higher labor expenses are also expected to weigh on margins. Furthermore, at its third-quarter conference call, management noted that commodity costs, particularly ground beef, chicken and produce might remain elevated in the short term. This, in turn, could pressurize margins in the to-be-reported quarter.

Subsequently, per the Zacks Consensus Estimate, the company is anticipated to report a loss of 1 cent, showing a deterioration of 114.3% year over year.

Our Quantitative Model Does Not Predict a Beat

Habit Restaurants 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 -87.51%. 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.

The Habit Restaurants, Inc. Price and EPS Surprise

The Habit Restaurants, Inc. Price and EPS Surprise | The Habit Restaurants, Inc. Quote

Stocks to Consider

Here are a few restaurant stocks to consider as our model shows that they have the right combination of elements to post an earnings beat.

Chuy's Holdings CHUY has an Earnings ESP of +0.82% and a Zacks Rank #2 (Buy). The company is expected to report quarterly numbers on Mar 8, 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bloomin' Brands BLMN has an Earnings ESP of +1.40% and a Zacks Rank #3. The company is expected to report quarterly results on Apr 25, 2018.

BJ’s Restaurants BJRI has an Earnings ESP of +2.94% and a Zacks Rank #3. The company is expected to report quarterly numbers on Apr 26, 2018.

Zacks Top 10 Stocks for 2018

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BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
 
Bloomin' Brands, Inc. (BLMN) : Free Stock Analysis Report
 
Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
 
The Habit Restaurants, Inc. (HABT) : Free Stock Analysis Report
 
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