DineEquity, Inc.DIN , is scheduled to report third-quarter fiscal 2017 numbers on Nov 9, before the market opens.
Last quarter, the company came up with a positive earnings surprise of 8.33%. In fact, its earnings met/surpassed the Zacks Consensus Estimate in the last four quarters, with an average beat of 3.76%.
DineEquity, Inc Price and EPS Surprise
Currently, DineEquity operates under the Applebee's Neighborhood Grill & Bar and International House of Pancakes (IHOP) brands.
Comps at the IHOP brand have not been encouraging over the last four reported quarters. Though initiatives to improve guest satisfaction via online ordering as well as testing of delivery services and development of an IHOP mobile application are expected to create improved revenue channels, the results are likely to take time. In fact, for the quarter, the Zacks Consensus Estimate for IHOP's domestic system-wide comps calls for a decline of 2.5%. In the preceding quarter comps fell 2.6%.
Also, Applebee's casual dining restaurants are facing stiff competition from fast-food and quick service restaurants. Resultantly, despite various efforts to reinvigorate the brand, its comps have been weak for quite some time.
Meanwhile, steps taken to revitalize the brand via increased focus on food and culinary innovation, consumer satisfaction and marketing are expected to drive comps over the long term, with an improvement likely 2018 onwards. Hence, given that fiscal 2017 is a transitional year for the brand, comps are very much likely to remain pressurized in the third quarter as well. Notably, the consensus estimate for Applebee's domestic system-wide comps is pegged at a decline of 7%. Comps fell 6.2% in the last quarter.
Solid-unit development is expected to somewhat boost this CA-based restaurant operator's top-line performance. Also, closure of several underperforming Applebee's and IHOP locations is expected to benefit franchisee portfolio financially and also has positive effect on the brand.
However, the continuing choppy sales environment in the overall restaurant space along with weak comps at both the brands might limit revenue growth. In fact, the consensus estimate for the quarter's revenues of $146.5 million projects a decline of 6.1% on a year-over-year basis.
Again, an increase in expenses related to sales initiatives may dent the quarter's profits. Incremental investments in marketing programs and promotional activity to combat competition are also expected to weigh on margins. In fact, the consensus estimate for third-quarter earnings of 88 cents reflects a year-over-year decline of 40.1%.
Nevertheless, our proven model shows that DineEquity has the right combination of the two key ingredients - a positive Earnings ESP and a Zacks Rank #3 (Hold) or better - to increase the odds of an earnings beat in the this quarter. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Zacks ESP : Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate is +5.14%. This is a major indicator of a likely positive earnings surprise.
Zacks Rank : DineEquity's Zacks Rank #3 when combined with a positive ESP makes us reasonably confident of an earnings beat.
Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a couple of stocks, which, as per our model, have the right combination of elements to post an earnings beat this quarter.
Noodles & Company NDLS has an Earnings ESP of +66.67% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
The Wendy's Company WEN has an Earnings ESP of +3.71% and a Zacks Rank #3.
Sally Beauty Holdings, Inc. SBH has an Earnings ESP of +1.15% and a Zacks Rank #3.
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