The third quarter of 2024 has been challenging for the restaurant industry as consumer spending tightens amid ongoing macroeconomic and geopolitical issues. Yet, quick-service restaurants (QSRs), especially those prioritizing value, have shown resilience in this tough environment. As budget-conscious consumers increasingly seek cost-effective dining options, value-focused segments have become more competitive, with brands ramping up promotional campaigns and cost-saving deals to attract and retain customers.
The industry players are likely to have benefited from strong demand for value-driven offerings and aggressive pricing strategies. Many companies have leaned into promotional campaigns, strategic partnerships and new product offerings to maintain engagement with their customer base. By focusing on innovation and broadening menu selections, restaurants aim to cater to a wider audience and boost same-store sales growth.
The industry's ability to adapt to evolving consumer preferences has been a major factor in mitigating the negative impacts of inflation, supply chain disruptions, and shifting demand. Emphasis on improving store operations, enhancing supply-chain efficiency, and digital innovation are likely to have contributed to better customer experiences and reduced wait times. The adoption of digital ordering, such as mobile order and pay, is likely to have driven growth. The initiative aligns with the industry-wide trend of using technology to streamline operations and boost customer engagement.
The latest Earnings Trend report suggests that the Zacks Retail-Wholesale sector’s third-quarter earnings are expected to increase by 4.2% from the year-ago period’s reported figure. The previous quarter recorded a 16.1% increase. The sector’s revenues are projected to increase 4.3% compared with 4.4% reported in the previous quarter. However, margins are expected to remain breakeven. Companies including CAVA Group, Inc. CAVA, Wingstop Inc. WING, and Chipotle Mexican Grill, Inc. CMG are expected to beat estimates in the ongoing reporting cycle.
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The industry's approach to fostering growth through product innovation, digital advancements, and operational enhancements reflects optimism, though challenges persist, particularly in markets such as China. Heightened competition, driven by aggressive pricing and rapid store expansion, has impacted profitability in emerging markets. Nevertheless, there remains confidence in the industry's ability to adjust to evolving consumer trends, continue innovating, and maintain growth by emphasizing premium experiences and efficiency improvements.
How to Make the Right Pick?
Given the wide range of companies in this space, the task is by no means easy. While it is impossible to be sure of the outperformers, our proprietary methodology — a positive Earnings ESP, along with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for identifying stocks with high chances of delivering a surprise in their upcoming earnings announcements. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with the abovementioned combination, chances of a positive earnings surprise are as high as 70%.
Our Choices
Here we discuss in detail the three abovementioned restaurant companies that are likely to beat estimates this time around.
CAVA Group is scheduled to report third-quarter 2024 results on Nov. 12. CAVA has an Earnings ESP of +19.74% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
CAVA’s third-quarter top line is likely to have been aided by strong consumer demand, menu innovation, and a revamped loyalty program. Also, the company’s expansion, "Connected Kitchen" initiative, and labor reallocation efforts are encouraging.
The Zacks Consensus Estimate for third-quarter 2024 earnings is pegged at 11 cents per share, suggesting growth of 83.3% from 6 cents reported in the prior-year quarter.
CAVA Group, Inc. Price and EPS Surprise
CAVA Group, Inc. price-eps-surprise | CAVA Group, Inc. Quote
Wingstop is slated to report third-quarter fiscal 2024 results on Oct. 30. WING currently has an Earnings ESP of +1.64% and a Zacks Rank #3.
The company’s third-quarter results are likely to benefit from unit expansion, franchise model, and technological initiatives. With more than 45 million digital users, Wingstop is capitalizing on its proprietary MyWingstop platform to improve engagement and conversion rates through hyper-personalization. The company's investment in data-driven marketing and digital transformation is setting the stage for sustained long-term growth.
The Zacks Consensus Estimate for third-quarter fiscal 2024 earnings is pegged at 97 cents per share, suggesting growth of 40.6% from 69 cents reported in the prior-year quarter.
Wingstop Inc. Price and EPS Surprise
Wingstop Inc. price-eps-surprise | Wingstop Inc. Quote
Chipotle is scheduled to report third-quarter 2024 results on Oct. 29. CMG currently has an Earnings ESP of +7.55% and a Zacks Rank #3.
Chipotle's third-quarter performance is likely to have benefited from its digital efforts, Chipotlane add-ons and marketing initiatives. This along with strength in digital sales and new restaurant openings bode well. The company’s ability to consistently enhance customer experience through technology, such as the introduction of cobotic prototypes like Autocado and the Augmented Makeline, further boosts its operational edge.
The Zacks Consensus Estimate for third-quarter 2024 earnings is pegged at 25 cents per share, suggesting growth of 8.7% from 23 cents reported in the prior-year quarter.
Chipotle Mexican Grill, Inc. Price and EPS Surprise
Chipotle Mexican Grill, Inc. price-eps-surprise | Chipotle Mexican Grill, Inc. Quote
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpChipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
CAVA Group, Inc. (CAVA) : Free Stock Analysis Report
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