Fast food giants will report their next quarterly earnings in the coming weeks. What's Wall Street looking out for? Among other things, the impact of inflation on the numbers like the cost of commodities and labor. Also of interest: Store growth and evidence that consumers are cheerier.
The good news is that labor costs and retention rates among employees are gradually improving allowing companies to return to "an increased focus on retention & training,” Lauren Silberman of Credit Suisse said in a note to investors.
Meanwhile, here’s what analysts expect from earnings announcements from five of the biggest food chains:
McDonald's (MCD) is expected to be one of the first to report earnings on Tuesday, January 31, before the market open. Per Bloomberg consensus estimates, the fast food giant is expected to report the following Q4 2022 results:
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Revenue: $5.74 billion, down 4.6% year-over-year
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Adjusted earnings per share: $2.44, up 6.3% year-over-year
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U.S. same-store sales: up 7.62%
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International operated markets same-store sales: up 7.56%
Wall Street's take: That revenue is compared to $5.87 billion, when growth was down 5.3% in Q3; that came in higher than Wall Street estimates of $5.70 billion, boosted by higher menu prices.
CITI analyst Jon Tower said the firm expects “a generally positive update” from the company with strong trends here in the U.S., easing foreign exchange headwinds, and improvement in its foreign exposure, specifically “that the European business has already seen the worst of inflation’s impact on the top & bottom-lines.” Tower’s price target is $279.00 and has a Neutral rating.
Starbucks (SBUX) will unveil its next quarterly results, first-quarter fiscal year 2023, on February 2. Analysts expect a boost in revenue:
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Revenue: $8.74 billion, up 8.6% year-over-year
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Adjusted earnings per share: $0.77 per share, up 2.7% year-over-year
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U.S. Same Store Sales: up 9.13%
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International Sales: down 3.87%
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China Sales: down 13.31%
Wall Street's take: Last quarter, revenue jumped just 3.3%. Credit Suisse's Silberman said the firm still views SBUX as “one of the highest quality growth companies in restaurants,” with accelerating “same-store sales and unit growth, and margin expansion to support 15-20% EPS growth.”
That makes Starbucks an “an attractive risk/reward” stock. Silberman also expects the removal of the zero-COVID 19 policy in China to boost sales.
The U.S. is the elephant in the room: Analysts are also expecting to hear more from the company about the changes to its reward program, which has gotten some poor reviews from fans. Those are set to take effect in the next fiscal quarter on February 13. Credit Suisse has an Outperform rating on shares and a price target of $116.00.
Starbucks reported its fourth-quarter 2022 fiscal year 2022 results back in November.
Yum! Brands (YUM), which operates KFC, Pizza Hut, Taco Bell ,and Habit Burger Grill, is expected to report February 8; analysts expect a big jump in earnings per share:
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Revenue: $1.9 billion, up 1.7% year-over-year
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Adjusted earnings per share: $1.26 per share, up 23.3% year-over-year
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Same-Store Sales: up 4.40%
Wall Street's take: On Dec. 13, the fast food company hosted an Investor Day. Executives outlined system-sales growth of 10% for its Q4 2022, driven by strength in the Taco Bell U.S. business.
Andrew Charles of Cowen, who has a price target of $155.00 and Outperform rating, said there was major "upside" to Taco Bell's same-store sales, which makes up roughly 30% of the company's operating profits. Charles added that opportunities for upside include how the brand balances value and premium menu innovation, and "to a lesser degree" how the company benefits from late-night sales (8 p.m.- close). That's "where the brand is having an easier time staffing versus peers," he said. Digital is a focus, accounting for $24 billion in sales as of Q3 2022, with a 40% digital sales mix.
Chipotle Mexican Grill (CMG) is expected to report on February 7. For its fiscal fourth-quarter results, analysts expect:
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Revenue: $2.23 billion, up 13.9% year-over-year
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Adjusted earnings per share: $8.92 per share, up 63.1% year-over-year
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Same-store sales: 7.06%
Wall Street's take: Last quarter, Chipotle brought in revenue of $2.23 billion, up 13.9% year-over-year. CITI, however, believes this quarter's expectations are “muted,” given "company guidance around negative traffic and we understand the simple bear narrative (macro/too much price = persistent traffic issue).” In particular, Chipotle was directly impacted by the rising cost of avocados. To offset higher costs of food and labor, Chipotle raised menu prices 4% in August. That was the third time in 15 months. CITI has a Buy rating and $1,986 price target.
This comes as Chipotle has big plans for the new year. Ahead of its busy season (March to May), it plans to hire 15,000 workers. This will help with the ultimate long-term goal to reach 7,000 locations in North America, with plans to open as many as 285 new restaurants in 2023, per Q3 results. BTIG Managing Director Peter Saleh told Yahoo Finance when it comes to growth plans, "they've been consistently stepping it up every year."
Shake Shack (SHAK) is expected to report fiscal fourth-quarter results on February 16th after market close.
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Revenue: $238.4 million, up 17.3% year-over-year
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Adjusted earnings per share: -$0.11, down 11.1% year-over-year
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Same-Store sales: 5.23%
Wall Street's take: Shake Shack gave investors a preliminary look at its fourth-quarter results and its 2023 outlook at the ICR conference, a three-day event run by ICR partners. The burger chain announced plans to open 65 to 70 domestic and international locations in 2023, 40 of which will be company operated and nearly 30 owned by franchisers. One key development in the works: more drive thru locations, which tend to boost sales.
Goldman Sachs was encouraged by the preliminary results. The firm wrote in a note, "We are excited by SHAK’s diversification of store formats and think this will be key in driving unit growth for the company." The firm has a Buy rating and $56 price target.
Peter Saleh of BTIG, who moderated the interview at the conference, maintained a Buy rating and $60 price target following the preliminary results.
In a note to investors, he said: "While management did not get into detailed discussion on commodities or labor, it does appear as if the company is seeing promise in these areas, similar to the rest of the industry. While guidance for 1Q23 and the full year is lower than anticipated, we believe that could prove conservative as margin pressures ease while pricing remains elevated."
Cheesecake Factory (CAKE) is expected to announce fourth-quarter results on Feb. 15. Analysts expect the following
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Revenue: $901.87 million, up 16.1% year-over-year
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Adjusted earnings per share: $0.58, up 18.9% year-over-year
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Same-Store Sales:
Wall Street's take: Year-to-date shares are up more than 20%, despite two downgrades from analysts. UBS downgraded shares of from Neutral to Sell. UBS Analyst Dennis Geiger expects store sales to slow down for the fast-casual chain and for higher food and labor costs to take a toll on the company's bottom line. Whereas CITI downgraded the stock from a Buy to Neutral. CITI Analyst Jon Tower said that inflation and "no incremental plans" to tackle these higher costs makes it hard to gauge how the casual chain plans to grow its bottom line.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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Fast food earnings preview: McDonalds, Starbucks, Chipotle, Yum, and more - Yahoo Finance
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