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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Buffalo Wild Wings, Inc. (delisted) | NASDAQ:BWLD | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 156.95 | 157.05 | 155.00 | 0 | 01:00:00 |
This would likely leave less room for consumer companies to exercise pricing action which would put pressure on restaurant sales. Moreover, this would keep the overall cost environment for food commodities tight. Food costs account for about one-third of restaurant sales, thus making the industry vulnerable to food cost inflation.
Global Economy Yet to Recover at Full Swing: Consumer companies are far from immune to macroeconomic tensions like implementation of austerity measures in Europe owing to the sovereign debt crisis and decelerating growth in Asia.
The big chains have considerable exposure in European nations like France and Germany and in Asian countries like China. Although debt-ridden European regions have started witnessing improvements, they have yet to reach pre-crisis levels. Despite improving economic data, German customers remain extremely value-sensitive. Among the emerging nations, China and Brazil have their own share of problems. Japan also continues to be a dampener as it is still on the way to recovery from the 2012 earthquake.
Affordable Care Act to Hurt Margins: Since the sector plays a key role in the nation's employment picture, the recent Affordable Care Act by President Obama, commonly known as Obamacare, is expected to have an adverse impact on the operators' margins starting 2014.
The law entails companies to provide coverage for workers or face government penalties, though it is not applicable for employees who log less than 30 hours per week on an average. To avoid these austerities, most companies are trying out different labor models like involving more part-timers and cutting work hours, which would hurt margins of the restaurant chains.
Change in Consumer Preference: The latest trend in U.S. eateries is to serve a healthy menu, owing to consumer preference for fresh, organic, nutritious and low calorie food. Rising health concerns and increasing awareness about obesity and related diseases have led to the shift in consumer preference toward healthy and “good for you” products. Focus on child nutrition is also a priority. Though a few companies like Burger King, Kellogg Company (K) and The Hershey Company (HSY) are coming up with low-calorie offerings, the fuss about nutrition will continue to pose challenges.
There are some names that induce our cautious to bearish outlook. These include Arcos Dorados Holdings Inc. Cla (ARCO), Diversified Restaurant Holdings, Inc. (BAGR) and Tim Hortons Inc. (THI), each carrying a Zacks Rank #4 (Sell) while Bravo Brio Restaurant Group, Inc. (BBRG), Jamba, Inc. (JMBA) and Ruby Tuesday, Inc. (RT) carry a Zacks Rank #5 (Strong Sell). Famous Dave's of America Inc. (DAVE), Kona Grill Inc. (KONA) and Krispy Kreme Doughnuts, Inc. (KKD) hold a Zacks Rank #3 (Hold).
Zacks Industry Rank – Negative Outlook
Within the Zacks Industry classification, the restaurant industry is grouped within the broader Retail sector. We rank all 260+ industries in the 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank. http://www.zacks.com/zrank/about-zacks-industry-rank.php
As a guideline, the outlook for industries in the top 1/3rd of all Industry Ranks or a Zacks Industry Rank of #88 and lower is 'Positive,' the middle 1/3rd or industries with Zacks Industry Rank between #89 and #176 is 'Neutral' and the bottom 1/3rd or Zacks Industry Rank of #177 and higher is 'Negative.'
The Zacks Industry Rank for the restaurant industry is currently at #228. This is in the bottom 1/3rd of all industries ranked, highlighting the group’s near-term Negative outlook.
Earnings Trends
In this fourth quarter 2013 earnings season, results from nearly 102 S&P 500 companies have already been declared. The restaurant industry falls under the broader Retail-Wholesale sector, which has an earnings as well as revenue beat ratio (percentage of companies coming out with positive surprises) of 27.3% for the fourth quarter.
Earnings growth of 7.2% was seen at the sector in the fourth quarter, down from 10.7% growth in the third quarter of 2013 due to higher inflation costs. On the revenue front, the sector recorded an increase of 6.2% in the fourth quarter, up from a 3.8% increase in the prior quarter.
Looking at the Consensus earnings expectations for fourth quarter of 2013, earnings are expected to decline 0.1% in the fourth quarter of 2013. For 2014, the sector is poised to expand around 9.1% with 11.1% growth in the first quarter itself.
Revenue is expected to grow 2.2% in the fourth quarter of 2013. For the next year, the sector is poised to expand around 4.4% with 10.5% growth in the first quarter 2014.
For more details about earnings for this sector and others, please read our ‘Earnings Trends’ report.
Among the companies which have reported earnings this season, Darden Restaurants posted dismal fiscal second quarter 2014 results with earnings missing the Zacks Consensus Estimate and also declining year over year due to higher expenses. Weak results reflect underperformance in its core brands, Red Lobster and Olive Garden.
Brinker International’s fiscal second quarter 2014 earnings and revenues however beat the Zacks Consensus Estimate by a penny and 1.0%, respectively driven by strong comps. Meanwhile, McDonald's reported better-than-expected fourth quarter 2013 earnings, while revenues missed the consensus mark.
A look at the Earnings ESP in the table below shows that Yum! Brands and Burger King Worldwide could miss the Zacks Consensus Estimate in the next quarter (fourth quarter 2013).
Bottom Line
In hindsight, the performance of the restaurant sector was more or less satisfactory in recent times. For 2014, the industry is expected to generate growth as it focuses on inspired ways of meeting consumer demand. However, the sector will continue to face headwinds from a weak consumer spending environment and higher food and labor costs. Overall, the restaurant industry is expected to sustain its pace of recovery in 2014, albeit at a slower clip, as it contends with several global economic concerns.
Our proprietary Zacks Rank indicates the movement of the stocks over the short term (1 to 3 months). At present, respectively 22.0% and 33.0% stocks hold a positive and neutral outlook, while the remaining 45.0% is negative.
ARCOS DORADOS-A (ARCO): Free Stock Analysis Report
DIVERSIFIED RST (BAGR): Free Stock Analysis Report
BRAVO BRIO RSTR (BBRG): Free Stock Analysis Report
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
BURGER KING WWD (BKW): Free Stock Analysis Report
BUFFALO WLD WNG (BWLD): Free Stock Analysis Report
CHEESECAKE FACT (CAKE): Free Stock Analysis Report
CRACKER BARREL (CBRL): Free Stock Analysis Report
CEC ENTERTANMNT (CEC): Free Stock Analysis Report
CHIPOTLE MEXICN (CMG): Free Stock Analysis Report
FAMOUS DAVES (DAVE): Free Stock Analysis Report
DINEEQUITY INC (DIN): Free Stock Analysis Report
DOMINOS PIZZA (DPZ): Free Stock Analysis Report
DARDEN RESTRNT (DRI): Free Stock Analysis Report
BRINKER INTL (EAT): Free Stock Analysis Report
FACEBOOK INC-A (FB): Free Stock Analysis Report
FIESTA RESTRNT (FRGI): Free Stock Analysis Report
HERSHEY CO/THE (HSY): Free Stock Analysis Report
JAMBA INC (JMBA): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
KRISPY KREME (KKD): Free Stock Analysis Report
KONA GRILL INC (KONA): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis Report
PANERA BREAD CO (PNRA): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
RUBY TUESDAY (RT): Free Stock Analysis Report
CARROLS RESTRNT (TAST): Free Stock Analysis Report
TIM HORTONS INC (THI): Free Stock Analysis Report
TEXAS ROADHOUSE (TXRH): Free Stock Analysis Report
WENDYS CO/THE (WEN): Free Stock Analysis Report
YUM! BRANDS INC (YUM): Free Stock Analysis Report
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