We expect Noodles & Company NDLS to beat expectations when it reports second-quarter 2015 results on Aug 6, after the market closes.
Last quarter, the company posted a negative earnings surprise of 40.00%. The company has a four-quarter negative average earnings surprise of 18.45%.
Let us see what is in store for the company this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Noodles & Company is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +8.33%. This is meaningful and indicates a likely earnings surprise.
Zacks Rank: Noodles & Company has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 and 3 (Hold) have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Noodles & Company’s Zacks Rank #2 and +8.33% ESP makes us confident of an earnings beat.
What's Driving the Better-than-Expected Earnings?
Noodles & Company has undertaken certain strategic initiatives, like improving its throughput and simplifying and streamlining some of the kitchen design. Further, the company is focused on improving deployment and cooking procedures, especially during the peak hours. These measures should help boost comps in the second quarter.
Further, the company’s investments in technology, like the development of successful mobile order pay application and online platforms, are likely to improve guest experience and traffic, in the to-be reported quarter.
The company is also looking to cash in on the low carbohydrate craze in the U.S. by launching healthy menu items and continues to test naturally-raised, antibiotic-free chicken at its restaurants. These efforts are expected to boost traffic in the to-be reported quarter. The company’s successful catering program is likely to continue to drive sales.
Meanwhile, food cost inflation is expected to continue to dent profits. The noodles and pasta maker expects commodity inflation in the range of 1.5% to 2% during 2015 owing to an increase in the price of durum wheat, which will increase the cost of pasta.
Stocks to Consider
Here are some companies in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Red Robin Gourmet Burgers Inc. RRGB, with an Earnings ESP of +2.63% and a Zacks Rank #1.
Jamba, Inc. JMBA, with an Earnings ESP of +5.00% and a Zacks Rank #3.
Shake Shack Inc. SHAK, with an Earnings ESP of +33.33% and a Zacks Rank #3.
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