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Shake Shack (SHAK) to Report Q4 Earnings: What's in Store?

Zacks Equity Research

Shake Shack Inc. SHAK is scheduled to report fourth-quarter and full-year 2016 numbers on Mar 1, after the market closes.

Last quarter, Shake Shack’s earnings were in line with the Zacks Consensus Estimate. Prior to that, the company surpassed earnings estimates in each of the three trailing quarters, bringing the average surprise in last four quarters to a positive 13.83%.

Let’s see how things are shaping up for this announcement.

Shake Shack, Inc. Price and EPS Surprise

 

Shake Shack, Inc. Price and EPS Surprise | Shake Shack, Inc. Quote

Factors Likely to Influence This Quarter
    
Shake Shack’s cult following and successful expansion into various cities around the world has been driving traffic, which in turn is leading to higher Same-Shack sales (or comps). Also, menu expansion and innovation, limited time offerings along with initiatives undertaken on the digital front are boosting comps. We expect the trend to have continued in the to-be-reported quarter.

Notably, for full-year 2016, the company expects revenues in the range of $264 million to $265 million. Meanwhile, Same-Shack sales are anticipated to grow in the band of 4–5%.

Moreover, Shake Shack is poised to cash in on the diversification its licensing business brings, the resource-light and efficient model, the low-risk royalty stream, and the opportunity to reach places that it could not reach domestically.

Nevertheless, elevated labor and pre-opening costs are adding to the expenses, which might hurt profitability and margins in the quarterly results. Additionally, volatility in the Middle-East oil markets and unfavorable foreign exchange translations remain potent headwinds for the top line. Moreover, a soft consumer spending environment in the U.S. restaurant space might hurt traffic and thereby comps in the fourth quarter.

Earnings Whispers

Our proven model does not conclusively show that Shake Shack is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Shake Shack has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 9 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Shake Shack has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Notably, we caution you 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.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Staples, Inc. SPLS has an Earnings ESP of +4.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy Co., Inc. BBY has an Earnings ESP of +1.81% and a Zacks Rank #3.

Costco Wholesale Corp. COST has an Earnings ESP of +0.74% and a Zacks Rank #3.

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