A Preview Of Shake Shack's Q3 Earnings

Shake Shack Inc SHAK, a modern day “roadside” burger stand, is set to report its third-quarter results Wednesday after market close.

From The Street

Wall Street analysts, on average, expect the company to earn $0.14 a share on revenue of $69.33 million. The consensus estimate implies 17 percent increase in EPS and 30 percent rise in sales from last year when it earned $0.12 on revenue of $53.27 million.

In fact, the company’s earnings have managed to top Street estimates in all of the past four quarters in a range of 7.7 percent to 71.40 percent. 

However, Shake Shack is announcing its quarterly numbers at a time when even industry behemoths like McDonald's Corporation MCD and Starbucks Corporation SBUX can’t entirely offset the headwinds from the ongoing industry slump due to the sluggish U.S. economy.

The company is betting on its expansion in to various cities, coupled with menu expansion and limited-time offerings to counter the industry headwinds. These initiatives, apart from growth in its licensing business, have helped sales grow in the past.

That said, the company’s margins may face pressure from increased labor costs, higher location opening expenses.

Investors will be on the lookout for commentary on expansion opportunities and how recently opened restaurants are faring. They are also likely to focus on whether there would be any change to the 2016 forecast and any color on 2017.

In the second quarter of 2016, Shake Shack reported adjusted EPS of $0.14, 27.2 percent growth in total revenue to $66.5 million and 4.5 percent comp growth. At that time, the company revised its 2016 outlook and said it expects total revenue between $253 million and $256 million (vs. $245 million to $249 million) and Same-Shack sales growth between 4 percent and 5 percent.

Buckingham Weighs In

Buckingham Research Group believes Shake Shack is still in its initial growth phase. However, that did not prevent the firm from reducing its comps expectations for the third quarter from 0.5 percent to flat to reflect the soft market conditions.

The brokerage pointed out that Shake Shack faces the tough comparison on a year-over-year basis, citing the 17.1 percent growth achieved in 2015. Although the company has not offered any forecast, consensus estimates 1.8 percent comps growth.

Wedbush's Take

Meanwhile, Wedbush said the likelihood of more optimistic scenarios for Shake Shack decrease, as current valuation implies an opportunity well above its base case scenario and the management guidance.

Wedbush expects earnings per share of $0.16 per share on revenues of $68.8 million for the third quarter. The brokerage believes same-store sales growth headwinds may intensify going forward and that new unit upside is less likely in 2017 and beyond.

At last check, shares of Shake Shack were down 0.12 percent to $32.53.