Courtesy of Benzinga.
Jefferies analysts led by Andy Barish and Alexander Slagle believe third-quarter restaurant results to be mixed, with some results slightly below the Street’s consensus expectations. Most of their conservatism derives from their expectations for same-store sales and restaurant-level margins.
What Jefferies Noted
While same-store sales figures remained mostly positive over the quarter, traffic continues to be negative. In fact, the experts believe “many have been left wondering what happened to the broad pick-up that really never took place.”
In addition, many of the quick service restaurant companies, which may have benefited from the additional consumer spending seen in the second half of 2014 (mostly related to the drop in gas prices) “are now rolling over more difficult SSS,” the note explained.
The focus this quarter will most likely be put on labor costs, as minimum wage increases at state and local levels, coupled with increasing growth in employment and increased competition “has led to wage inflation that is pushing north of 3 percent, not to mention the higher costs of recruiting, turnover and training that may be with the industry for some time to come.”
On top of these labor pressures, Jefferies sees a few commodity tailwinds starting to fade heading into the third quarter. This should also impact margins.
The Word Out There
According to the report, a few themes developing over the quarter include:
Below is a table of Jefferies’ new earnings estimates and price targets for the industry.
Source: Jefferies
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
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