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Fogo de Chao (FOGO) Q2 Earnings: Disappointment in Store?

Zacks

Fogo de Chao, Inc. FOGO is set to report its second-quarter 2017 results on Aug 8, after the market closes. In fact, this will mark the leading Brazilian steakhouse’s ninth quarterly earnings release since it began trading on NASDAQ in Jun 2015.

Last quarter, the company posted in-line earnings. However, its trailing four-quarter average earnings surprise is a negative 0.41%.

Let’s see how things are shaping up for this announcement.

Fogo de Chao, Inc. Price and EPS Surprise


Factors to Consider

Fogo de Chao specializes in fire-roasting high-quality meats, using the centuries old Southern Brazilian cooking technique of churrasco. It also offers several varieties of meat − beef, lamb, chicken, pork and seafood − to suit the palate of diners. In fact, the company’s unique South American style of cooking on an open flame has helped it gain enormous popularity.

Notably, the top line in the to-be-reported quarter is likely benefit from initiatives like menu innovation, introduction of value platforms, daypart expansion, marketing through various channels, re-imaging of restaurants and unit development efforts. In fact, the company expects its Brazil remodel program to provide a lift to revenue of approximately 2-3% on average.

Meanwhile, the use of social media to increase brand awareness and thereby drive traffic, might also prove incremental to sales. Furthermore, the company’s roll out of its most significant bar menu enhancements in the U.S. is expected to bolster revenue growth.

Although the company has been experiencing increased labor costs in relation to specialized training for the various initiatives, labor cost pressure is expected to ease in the to-be-reported quarter.

Meanwhile, higher preopening costs and expenses related to sales initiatives are likely to weigh on second-quarter profits. In addition, a challenging sales environment in the U.S. restaurant space is likely to hurt comps while sales in Brazil are expected to continue reflecting the impact of the sustained economic recession. Also, foreign currency fluctuations may further mar top-line growth.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Fogo de Chao this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Fogo de Chao has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 23 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Fogo de Chao carries a Zacks Rank #4 (Sell).

As it is we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks to Consider

Here are some companies in the broader Retail-Wholesale sector to consider as our model shows that they have the right combination of elements to post earnings beat this quarter:

Alibaba Group Holding Limited BABA has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nordstrom, Inc. JWN has an Earnings ESP of +3.28% and a Zacks Rank #3.

Dillard's, Inc. DDS has an Earnings ESP of +30.00% and a Zacks Rank #3.

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