Personal Finance

Why Habit Restaurants Inc Stock Tumbled Today

A chicken sandwich from Habit

What happened

Shares of Habit Restaurants Inc (NASDAQ: HABT) were getting fried today, falling 25.7% as of 12:26 p.m. EDT after the fast-casual burger chain turned in a disappointing third-quarter earnings report.

The company posted its first comparable sales decline in more than 13 years as comps dipped 0.2%, and it missed estimates on both top and bottom lines.

A chicken sandwich from Habit

Image source: Habit Restaurants.

So what

Overall revenue, driven entirely by new store openings, increased 17.7% to $84.6 million, which was below expectations of $85.8 million. Its adjusted profit per share fell from $0.05 to just a penny, missing the Wall Street view at $0.03.

CEO Russ Bendel called it "another challenging quarter," but added, "We are pleased with the consumer responses to our recent limited-time offers as well as effectiveness around our most recent radio campaign in Northern and Southern California.

The company also said it signed its first international franchise agreement to expand into the U.K. and the Netherlands. That may offer a silver lining to this quarter's report, but it's easy to see why the stock is plummeting as the growth story has essentially fallen apart.

Now what

Management said it expected revenue of $331 million to $333 million for the full year, below the consensus at $335.7 million. It also sees comparable sales of flat to slightly negative, indicating that comps will likely be down in the fourth quarter as well.

Like many fast-casual and casual dining chains , Habit Restaurants is struggling with oversaturation in the market and rising labor costs, which are especially tough on the burger chain since its biggest market is in California. Comparable sales across the industry have been falling, and restaurant stocks have largely underperformed the market. Habit continues to expand with plans to grow its base of company-operated restaurants by about 18% this year to more than 200, but as long as comparable sales are flat, profits are unlikely to improve. I'd avoid Habit until it can demonstrate meaningful comparable sales and profit growth.

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Jeremy Bowman owns shares of Habit Restaurants. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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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