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Potbelly (PBPB) to Report Q3 Earnings: A Beat in Store?

Potbelly CorporationPBPB is set to report third-quarter 2016 results on Nov 1, after the market closes . We expect the company to surpass expectations.

Last quarter, the company posted an earnings surprise of 25%. In fact, the Chicago-based casual-dining restaurant's earnings outpaced/met the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 11.81%.

Why a Likely Positive Surprise?

Our proven model shows that Potbelly is likely to beat earnings because it has the favorable combination of two key ingredients.

Zacks ESP:Earnings ESP for Potbelly stands at +10.00% because the Most Accurate estimate stands higher at 11 cents per share while the Zacks Consensus Estimate is pegged at 10 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Potbelly currently sports a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

We are reasonably confident of an earnings beat for Potbelly as it has a favorable combination of +10.00% ESP and Zacks Rank #1.

POTBELLY CORP Price and Consensus

POTBELLY CORP Price and Consensus | POTBELLY CORP Quote

What is Driving the Better-than-Expected Earnings?

Potbelly has been reporting positive comps over the past few quarters and we expect the trend to continue in the to-be-reported quarter as well. Positive traffic trends, mainly driven by extensive menu innovation, are anticipated to drive comps. Potbelly continues to develop a pipeline that will complement its core menu, while maintaining its operational efficiency. Further, the company is undertaking large-scale digital marketing initiatives in an effort to increase customer base.

However, increased labor expenses due to minimum wage increases across some of the markets in which Potbelly operates, might prove to be a headwind. Additionally, the company's rising cost structure is likely to hurt margins in the third quarter.

Moreover, in the second quarter conference call, Potbelly mentioned persistent consumer headwinds that have impacted the broader restaurant industry and a challenging sales environment specifically related to weather conditions in certain markets, will put pressure on the top-line.

Stocks to Consider

Potbelly is not the only company looking up this earnings season. Here are some other restaurant companies to consider as our model shows they also have the right combination of elements to post an earnings beat this quarter:

The Wendy's Company WEN has an Earnings ESP of +10.00% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Fogo de Chao, Inc. FOGO has an Earnings ESP of +13.33% and a Zacks Rank #3.

DineEquity, Inc. DIN has an Earnings ESP of +2.16% and a Zacks Rank #3.

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

DINEEQUITY INC (DIN): Free Stock Analysis Report

FOGO DE CHAO (FOGO): Free Stock Analysis Report

POTBELLY CORP (PBPB): 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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