Markets

Did Restaurant Earnings Impact This New ETF?

With the introduction of the new Restaurant ETF ( BITE ) at the end of last month, time has come to evaluate the impact of the recent spate of restaurant industry earnings on it. Most of the restaurant stocks delivered better-than-expected earnings and rising same-store sales (comps) in the last reported quarter (read: Time to Take a Bite into This Exclusive Restaurant ETF? )

The upbeat results definitely speak about the strong fundamentals of the industry. Low fuel cost, an improving U.S. economy, rising consumer confidence, higher consumer spending and better job prospects all bode well for the restaurant industry. Let us take a quick glance at some of these results (read: 4 Solid Reasons to Buy Consumer Discretionary ETFs ).

Restaurant Earnings in Detail

McDonald's Corporation ( MCD ) posted earnings per share of $1.40 for the third quarter that beat the Zacks Consensus Estimate of $1.27 by 10%. Earnings, in constant currencies, grew 44% year over year driven by decline in total costs and expenses and a lower share count.

Revenues of $6.62 billion declined 5% year over year due to currency headwinds but grew 7% in constant currencies, beating the Zacks Consensus Estimate by 2.7%. This was driven by comps growth at all its segments. The maker of hamburgers and fries expects comps to grow in the fourth quarter as well.

Starbucks Corporation's ( SBUX ) adjusted earnings of 43 cents per share in the fourth quarter of fiscal 2015 missed the Zacks Consensus Estimate of 44 cents by 2.3%. However, earnings were on the higher end of management's guided range and grew 16% year over year as solid top-line growth offset lower margins.

Sales rose 18% to $4.91 billion, outpacing the Zacks Consensus Estimate of $4.89 billion by 0.5% driven by robust comps. Global comps growth of 8% was higher than a 7% rise in the previous quarter, driven by increased traffic trends. The company expects revenues to grow more than 10% in fiscal 2016, excluding the extra 53rd week. Comps are expected to grow somewhat above the mid single-digit range (read: Starbucks Q4 Earnings Show Strength: ETFs in Focus ).

Buffalo Wild Wings Inc.'s ( BWLD ) third quarter results were disappointing. The restaurant operator's adjusted earnings of $1.00 per share fell 12.2% year over year and were short of the Zacks Consensus Estimate of $1.28 by 22% owing to higher food and labor costs. Despite a 22% increase, the company's revenues of $455.5 million missed the consensus estimate by roughly 1.8%. It also expects single-digit net earnings growth for 2015 compared with 13% growth expected previously.

The Wendy's Company's ( WEN ) adjusted earnings came in at 9 cents per share, exceeding the Zacks Consensus Estimate by 12.5% and year-ago earnings by 28.6% driven by lower expenses and improved margins. Total revenue of $464.6 million beat the consensus mark of $442.0 million by 5% but declined 6.5% from the prior year. The company marginally revised its earnings, EBITDA and comps guidance for 2015 on the basis of strong year-to-date operating results and encouraging response to the 4 for $4 promotion that began in October.

ETF Impact

Strong results notwithstanding, the performance of restaurant stocks has not been commensurate due to several headwinds like the threat of higher labor costs due to demand for rising minimum wages, price wars, strong currency and a slowdown in the Chinese economy. This found a reflection in the performance of BITE, which exclusively focuses on this industry. The fund has tumbled 5.8% since its launch (as of November 12, 2015).

Except McDonald's and Starbucks, nearly all the stocks in the fund's top 10 holdings nosedived in the past one month. Investors, therefore, should exercise caution before hopping into this niche ETF and closely monitor its price movements in the coming days. Let us take a look at this ETF in greater detail.

BITE tracks the BITE Index, which is an equal-weighted index comprising 45 publicly traded companies in the U.S. The fund's holdings include some of the renowned companies in the restaurant industry that operates a broad variety of restaurant formats raging from quick serve and fast casual to casual dining and fine dining.

The fund's top five holdings include McDonald's, Starbucks, Carrols Restaurant Group Inc. ( TAST ), Chuy's Holdings, Inc. ( CHUY ) and Ruth's Hospitality Group Inc. ( RUTH ). Together, the top 10 holdings occupy 27.6% of the fund's assets.

BITE has net assets worth $2.4 million and is thinly traded with an average volume of around 5,000 shares per day. The fund is a bit expensive with 0.75% in expense ratio.

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THE-RESTAURANT (BITE): ETF Research Reports

MCDONALDS CORP (MCD): Free Stock Analysis Report

STARBUCKS CORP (SBUX): Free Stock Analysis Report

BUFFALO WLD WNG (BWLD): Free Stock Analysis Report

WENDYS CO/THE (WEN): Free Stock Analysis Report

CARROLS RESTRNT (TAST): Free Stock Analysis Report

CHUYS HOLDINGS (CHUY): Free Stock Analysis Report

RUTHS HOSPITLTY (RUTH): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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