Fogo de Chao, Inc. FOGO is set to report its second quarter results on Aug 11 after the markets close.
This will be the first quarterly results of this leading Brazilian steakhouse since it began trading on NASDAQ in Jun 2015. Let’s see how things are shaping up for Fogo de Chao’s earnings announcement.
Factors to Consider
The company specializes in fire-roasting high-quality meats utilizing the centuries-old Southern Brazilian cooking technique of churrasco. Servers walk around with several varieties of meat—beef, lamb, chicken, pork, and seafood—and diners can choose whatever they like. The meat is cooked on skewers and then sliced at the table. The menu also includes a market table with salad and vegetable options, small side dishes paired for sharing, and dessert choices that vary by location. Diners pay $59.50 for unlimited food.
Currently, the company operates 26 restaurants in the United States, 10 in Brazil and one joint venture restaurant in Mexico. The company intends to expand internationally, increasing its presence in Brazil as well as selectively open new restaurants in Asia, Australia, Canada, Europe, the Middle East, and South America.
Driven by sales boost initiatives like menu innovation, marketing through various channels, re-imaging of restaurants and expansion efforts, the company reported $262 million in revenues from only 35 locations in the U.S. and Brazil in 2014, up 20% year over year. Restaurant sales grew 2.9% in the U.S. and 11.4% in Brazil in 2014. Meanwhile, it posted net income of $17.6 million in 2014 after posting a loss of $1.0 million in 2013. We expect its efforts to aid profits in the soon-to be reported quarter as well.
However, like other restaurant chains, higher food costs especially that of beef would hurt the profits of the company. Also, higher labor costs and costs related to initiatives to boost sales would keep profits under pressure. Stiff competition and soft consumer spending also remain headwinds.
Earnings Whispers
Our proven model does not conclusively show that Fogo de Chao is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 9 cents.
Zacks Rank: Fogo de Chao has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Some stocks in the restaurant industry that have both a positive Earnings ESP and a favorable Zacks Rank are:
Red Robin Gourmet Burgers Inc. RRGB with an Earnings ESP of +2.63% and a Zacks Rank #2 (Buy).
Shake Shack Inc. SHAK with an Earnings ESP of +33.33% and a Zacks Rank #3 (Hold).
Darden Restaurants, Inc. DRI with an Earnings ESP of +5.36% and a Zacks Rank #2.
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