We expect Dallas-based Wingstop Inc. WING to beat expectations when it reports fourth-quarter 2015 results on Mar 3, after the market closes. This is the company’s third quarterly results after its IPO last June. Wingstop will also report the full-year results.
Last quarter, the restaurateur posted a positive earnings surprise of 22.22% for the second consecutive quarter.
Let us see what is in store for the company this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Wingstop 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 +9.09%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Wingstop has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings.
Meanwhile, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Wingstop’s Zacks Rank #2 and +9.09% ESP makes us confident of an earnings beat.
What's Driving the Better-than-Expected Earnings?
Wingstop, which operates as a chicken wings specialist, serves classic and boneless wings with 11 bold flavors. In the last quarter, the company reported a 6.3% increase in domestic same-restaurant sales.
Wingstop has an enviable streak of reporting positive comps for 12 years. We expect the trend to continue in the to-be-reported quarter as well backed by menu innovation and unit growth. The company's store count has also grown nearly 19% over the past year and is expected to continue in the fourth quarter as well.
Sales from the company’s online ordering platform and mobile app, launched in 2014, doubled to approximately 14% of the domestic system-wide sales in the third quarter. This momentum has continued into the fourth quarter where online sales have exceeded 15% of domestic system-wide sales through the first four weeks of the quarter. We expect this online platform to continue to boost the upcoming results.
However, high chicken costs and labor expenses are likely to hurt the company’s profits as well as margins in the to-be-reported quarter. Avian flu in some parts of the U.S. might hurt chicken supply, thereby further increasing the costs.
Other Stocks to Consider
Here are some stocks in the broader retail sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Big Lots Inc. BIG, with an Earnings ESP of +0.51% and a Zacks Rank #3.
Vera Bradley, Inc. VRA, with an Earnings ESP of +2.44% and a Zacks Rank #3.
Abercrombie & Fitch Co. ANF, with an Earnings ESP of +5.21% and a Zacks Rank #3.
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