Increased Costs to Hurt Habit Restaurants (HABT) Q4 Earnings

The Habit Restaurants, Inc. HABT is scheduled to report fourth-quarter 2018 results on Feb 28, after the market closes.

The company’s various promotional and marketing efforts are supposed to have aided the overall top line in the to-be-reported quarter. Meanwhile, higher costs might dent earnings in the fourth quarter.

Let’s see how things are shaping up for the to-be-reported quarter.

Top Line Likely to Grow

In the first nine months of 2018, Habit Restaurants’ total revenues increased 21.5% year over year on the back of the company’s differentiated brand positioning, and successful marketing and culinary innovation. In the third quarter of 2018, revenues increased 23.7% year over year while company operated comps increased 3.6%.

We believe that the company continued to innovate across its menu offerings and digital capabilities to augment the top line in the quarter to be reported. Subsequently, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $99.9 million, reflecting 17.4% year-over-year growth.

Earnings to Disappoint

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

Incremental investments in marketing programs, and promotional activity, as well as consistently high labor expenses, are also expected to weigh on margins. Further, management noted that commodity costs, particularly beef, chicken and produce might remain high. This, in turn, could pressurize margins in the to-be-reported quarter.

Subsequently, the consensus estimate predicts loss of 2 cents in the fourth quarter, down from break-even earnings in the prior-year quarter.

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.

Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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.

Peer Releases

Brinker EAT reported mixed second-quarter fiscal 2019 results, wherein earnings were in line with the Zacks Consensus Estimate but revenues surpassed the same. Adjusted earnings of 89 cents per share were in line with the Zacks Consensus Estimate and increased 2.3% on a year-over-year basis.

McDonald’s MCD reported impressive fourth-quarter 2018 results. Adjusted earnings of $1.97 per share surpassed the consensus mark of $1.90 and increased 15% from the year-ago quarter (18% in constant currencies). The upside reflects stronger operating performance.

Starbucks SBUX reported impressive first-quarter fiscal 2019 results. Adjusted earnings of 75 cents per share surpassed the Zacks Consensus Estimate of 65 cents and grew 15.4% on a year-over-year basis.

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