Noodles & Company (NDLS) is set to report third-quarter 2014 results on Nov 5, 2014. In the last quarter, the company posted a negative earnings surprise of 26.67%. Let’s see how things are shaping up for the upcoming announcement.
Factors to Consider This Quarter
Noodles & Company’s profits are being hurt by higher costs and expenses and declining margins. In fact, costs of goods sold of this fast casual restaurant is likely to be on the higher side in the soon-to-be-reported quarter owing to increased promotional activity as well as an increase in both dairy and shrimp ingredient costs, thereby hurting margins. Also, pre-opening costs of restaurants and general and administrative costs would pressurize margins.
Noodles & Company’s first half of 2014 was softer than expected. In fact, comparable restaurant sales (comps) declined in both the quarters possibly due to the weak consumer spending environment. We expect the trend to continue given the current sluggish environment.
However, Noodles & Company is taking all the necessary steps to improve growth. Menu innovation is an important part of the company’s strategy, which is complemented by limited time offers. Also, its catering program is receiving an overwhelming response.
Like some other food chains, Noodles & Company is also capitalizing on digital technology. Online ordering has continued to grow at a rapid pace. In the second quarter, online ordering comprised 4% of sales, more than double in the six months period. We believe that these initiatives would help the company to improve traffic and thereby comps.
Earnings Whispers?
Our proven model does not conclusively show that Noodles & Company is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 10 cents. Hence, the difference is 0.00%.
Zacks Rank #3 (Hold): Though Zacks Ranks #1, 2 or 3 increase the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. Note that the Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Stocks to Consider
Other stocks in the broader consumer discretionary sector that have both a positive earnings ESP and a favorable Zacks Rank are:
The Walt Disney Company (DIS) with Earnings ESP of +3.41% and a Zacks Rank #2 (Buy).
Pinnacle Entertainment Inc. (PNK) with Earnings ESP of +4.55% and a Zacks Rank #3.
Isle of Capri Casinos, Inc. (ISLE) with Earnings ESP of +40.00% and a Zacks Rank #3.
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