Restaurant quarterly earnings: ‘it’s going to be choppy’

There's little euphoria in the restaurant industry going into earnings season. Source: Buffalo Wild Wings Analysts point to an early Easter and unfavorable weather to partially account

for lighter foot traffic in March, and others say downbeat economic talk by presidential candidates may be playing a role. "It's going to be choppy," said Jefferies analyst

Andy Barish. "Just like the market, it's been up and down sales-wise, with the quarter ending a little bit softer in March." The latest Knapp-Track index for the casual dining

sector revealed that year-over-year same-store sales fell 2.1 percent for the month of March. The data showed a 3.6 percent decline in guests. Knapp data are widely watched in the

restaurant industry and seen as sometimes predicting how restaurant same-store sales are trending. "There's scary stuff being said (this election cycle) so that puts a damper on

things," said Malcolm Knapp, the New York-based consultant who created the Knapp-Track index. "People are really uncertain of what's going to happen — and they're going

to hunker down, they're going to save, they're going to spend very selectively." Robert W. Baird & Co. analyst David Tarantino said in a research note Monday that his

firm's restaurant industry survey for March showed trends "consistent with Knapp-Track deceleration." Overall, restaurant companies with an "elevated risk of a

shortfall" on consensus same-store sales projections in the January-March quarter include Buffalo Wild Wings, BJ's Restaurants and The Cheesecake Factory, according to the Baird

report. On the flip side, Baird believes those companies with "the highest degree of confidence" to meet estimates include McDonald's, Starbucks and Panera Bread, among the

major restaurant names. "The whole segment is really watching McDonald's," said Nicole Miller Regan, industry analyst at Piper Jaffray. "Just from a segment perspective,

they are looking at market share gains and losses. If McDonald's continues to do well, share shifts away from usually someone within the QSR (quick service restaurant) segment."

McDonald's domestic same-store sales, or comps, are forecast by analysts to be up 4.6 percent in the January-March quarter, according to a survey by Consensus Metrix, which tracks

analysts' estimates. The fast food giant's earnings are forecast to increase by 15 percent in the first quarter, while sales are projected to decline 3 percent, according to

Thomson Reuters. McDonald's has exceeded consensus earnings estimates in the last three quarters. The Piper analyst has an "overweight" rating on McDonald's stock. As for

Starbucks, Miller Regan said: "They are absolutely executing. So while we can certainly debate the valuation, the execution is flawless and it's a stock that should be

owned." Barish, the Jefferies analyst, also likes Starbucks and calls it "our favorite large-cap name." That said, he's cautious on Buffalo Wild Wings and Bloomin'

Brands (both report next Tuesday) because they are at risk of "experiencing softer, negative same-store sales." Starbucks' comps in the Americas region are forecast to

increase 7.4 percent in the March quarter, the coffee behemoth's fiscal second quarter. Earnings are forecast to perk up by 18 percent in the quarter and sales are projected to climb 10

percent. Starbucks has posted positive earnings surprises in 2 out of the last 3 quarters. No sales recovery for Chipotle until 2018: Analyst McDonald's reports results before the

market opens Friday; Starbucks results are set to come out after markets close Thursday. Yum Brands is scheduled to post results Wednesday after the bell, while Chipotle is scheduled to

report next Tuesday, and Panera Bread on April 27. At Yum Brands, earnings are forecast to be up 4 percent in the first quarter and sales are seen rising just 1 percent. Yum's China

comps are forecast to be up 2.1 percent in the quarter, with stronger results from the KFC business offsetting weakness from the Pizza Hut chain, according to Consensus Metrix. In the United

States, Yum's Taco Bell chain is forecast to show 3.1 percent comps growth, with slower growth seen from the Pizza Hut and KFC units. CIC backs group in talks to buy Yum China, owner

of Pizza Hut, KFC franchises: Bloomberg As for struggling Chipotle, analysts forecast the company will post a quarterly loss in the latest quarter compared with a year-ago profit. Sales are

projected to decline by 20 percent. Same-store sales are forecast to plummet 28.4 percent in the quarter. "Our sales comps effectively reached their low in mid-January, and in a matter

of six weeks we have cut the impact to sales comps nearly in half, from negative 40 percent at the low point in mid-January down to about negative 20 percent in the first week of

March," Chipotle Chairman and co-CEO Steve Ells said last month at an investor conference sponsored by Bank of America Merrill Lynch.