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After witnessing declining comps for seven quarters, the U.S. restaurant industry saw a turnaround in the fourth quarter of 2017. According to TDn2K’s The Restaurant Industry Snapshot, fourth-quarter comps were up 0.4%, comparing favorably with the third quarter’s decline of 1%. Moreover, March 2018 marked the highest sales growth since October 2017, with comps rising 0.8%. However, comps in the first quarter rose only 0.1% year over year. Nonetheless, the industry saw two successive quarters of positive comps which reflects slow yet steady growth.
Per the National Restaurant Association (NRA), the industry generated $799 billion in revenues in 2017, up 4.3% from 2016. Restaurant operators are resorting to various sales-building efforts, cost cuts, franchisee-based business models, loyalty programs and increased usage of technology to enhance guest experience and drive traffic as well as comps.
Also, they are rapidly adapting to the changing tastes and preferences of their guests to keep them engaged. To do so, restaurant operators are consistently trying to bring innovations on the menu front to cater to the ever-changing taste of customers.
Recent gains in the labor market on the back of a steady rise in wages are likely to encourage consumers to dine out more. U.S. consumer confidence touched a new 14-year high in March. The consumer sentiment index was 102.0 in March compared with 99.7 in February.
As we take a closer look at the earnings season, we see a steady improvement over the past few quarters. So far, this earnings season has seen releases from 87 S&P 500 members, with 82.8% beating EPS estimates and 67.8% beating revenue estimates.
According to the latest Earnings Preview, total earnings in first-quarter 2018 are expected to be up 18.3% from the prior-year quarter on 7.7% higher revenues compared with 13.4% earnings growth in the fourth quarter of 2017 on 8.6% rise in revenues.
Earnings for the Retail-Wholesale sector, to which the restaurant industry belongs, are expected to increase 11.7% compared with 3% in the prior quarter. Revenues are expected to improve 7.6% in the quarter.
Now let us take a look at how the following restaurant companies are placed ahead of their quarterly release on Apr 26.
Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock has a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Starbucks Corporation SBUX is set to report second-quarter fiscal 2018 results on Apr 26, after the closing bell.
In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 14.04%. However, the coffee-chain giant reported in-line results on earnings in three of the trailing four quarters, resulting in a positive surprise of 3.51%. Nonetheless, we expect Starbucks’ earnings to increase in the to-be-reported quarter on higher revenues, lower tax rate and share repurchases.
That said, the company is expected to experience softer comps in second-quarter fiscal 2018, thanks to multiple challenges. Limited-time holiday beverages, holiday gift cards and holiday merchandise available for purchase in its stores' lobby underperformed in the quarter under review. (read more: Starbucks to Report Q2 Earnings: What's in Store?)
Our proven model does not show that Starbucks is likely to beat estimates this quarter as it has an Earnings ESP of -0.34% and a Zacks Rank #3.
For the fiscal second quarter, the Zacks Consensus Estimate for earnings is pegged at 53 cents, reflecting a 17.8% year-over-year increase. The consensus estimate for revenues is pegged at $5.91 billion, implying 11.5% year-over-year growth.
Starbucks Corporation Price and EPS Surprise
Starbucks Corporation Price and EPS Surprise | Starbucks Corporation Quote
Dunkin' Brands Group, Inc. DNKN is set to release first-quarter 2018 numbers on Apr 26, before the market opens. In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 1.6%. The company’s earnings surpassed estimates in three of the trailing four quarters, resulting in a positive surprise of 3.5%.
The company’s sincere focus on menu innovation as part of sales-building efforts along with relentless expansion of its brands is expected to be reflected in first-quarter 2018 results. In spite a fully franchised model, high labor costs and intense competition in the industry continue to be potent headwinds, which is likely to dent earnings in the to-be-reported quarter. (read more: Will High Costs Affect Dunkin Brands' Q1 Earnings?)
The Zacks Consensus Estimate for earnings is pegged at 52 cents, reflecting a 3.7% year-over-year decline. The consensus estimate for revenues is projected at $301.4 million, implying 58.1% year-over-year growth.
Our proven model shows that Dunkin' Brands is likely to beat estimates this quarter as it has an Earnings ESP of +0.57% and a Zacks Rank #3.
Dunkin' Brands Group, Inc. Price and EPS Surprise
Dunkin' Brands Group, Inc. Price and EPS Surprise | Dunkin' Brands Group, Inc. Quote
Domino's Pizza, Inc. DPZ is set to release first-quarter 2018 numbers on Apr 26, before the market opens. In the last reported quarter, the company’s earnings met the Zacks Consensus Estimate. The company’s earnings surpassed estimates in three of the trailing four quarters, the positive surprise being 5.2%.
Domino's initiatives on the digital front, increased store counts, focus on re-imaging and other sales boosting strategies are expected to contribute to growth in the upcoming quarterly results.
Domino’s is investing heavily in technology-driven initiatives like digital ordering to boost sales. In 2017, the company’s AnyWare suite of ordering platforms that allow customers to order from various ordering apps and platforms grew significantly. The trend is expected to continue in the to-be-reported quarter. Also, its digital loyalty program — Piece of the Pie Rewards — continues to contribute significantly to traffic gains. However, higher costs and negative currency translation are likely to hurt profits.
For the quarter, the Zacks Consensus Estimate for earnings is pegged at $1.77, reflecting a 40.5% year-over-year increase. The consensus estimate for revenues is projected at $686.3 billion, implying 10% year-over-year growth.
Meanwhile, our proven model shows that Domino’s is likely to beat earnings this quarter as it has an Earnings ESP of +0.20% and a Zacks Rank #3.
Domino's Pizza Inc Price and EPS Surprise
Domino's Pizza Inc Price and EPS Surprise | Domino's Pizza Inc Quote
Bloomin' Brands, Inc. BLMN is set to release first-quarter fiscal 2018 numbers on Apr 26, before the market opens. In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 5.1%. The company’s earnings beat estimates in two of the trailing four quarters, resulting in a negative surprise of 2.8%.
For the quarter, the Zacks Consensus Estimate for earnings is pegged at 58 cents, reflecting a 7.4% year-over-year increase. The consensus estimate for revenues is pegged at $1.11 billion, implying 3.4% year-over-year decrease.
Meanwhile, our proven model shows that Bloomin' Brands is likely to beat estimates this quarter as it has an Earnings ESP of +0.09% and a Zacks Rank #3.
Bloomin' Brands, Inc. Price and EPS Surprise
Bloomin' Brands, Inc. Price and EPS Surprise | Bloomin' Brands, Inc. Quote
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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