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Noodles & Company (NDLS) Q2 Earnings: Stock to Disappoint?


Noodles & Company NDLS is scheduled to report second-quarter 2017 numbers on Aug 10, after market close.

Last quarter, the company posted in-line earnings. However, the trailing four-quarter average earnings surprise is a negative 10.12%.

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

Noodles & Company Price and EPS Surprise

Factors Likely to Influence Q2 Results

Various sales building initiatives undertaken by the company such as streamlining of menu and its innovation, introduction of new cooking procedures, effective marketing strategy, increased focus on the off-premise business along with investments in technology-driven initiatives like digital ordering are expected to boost the quarter’s results. Moreover, efforts to simplify operations are likely to improve execution and result in increased guest satisfaction and labor productivity.

In fact, the return of its popular item – Pasta Fresca – in May 2017 might also boost the quarter’s sales.

Last quarter, Noodles & Company completed the closure of all of its underperforming restaurants that had been consistently hampering its human and financial capital. Thus, second quarter margins are likely to gain from this closure.

However, a soft consumer spending environment in the U.S. restaurants space might continue to hurt traffic and thereby comps in the to-be-reported quarter. In fact, per its first-quarter conference call, management anticipates low-to-mid single-digit negative company-owned comparable restaurant sales for the second quarter.

Meanwhile, this fast-casual restaurateur’s margins are further expected to be under pressure due to higher costs as well as expenses related to the implementation of strategic initiatives.

Notably, the company recently implemented a revised pricing structure, which incorporates about 2% of price increase, and aids in better understanding of the menu. Therefore, it now remains to be seen what impact this step has on traffic and sales in the quarter.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Noodles & Company 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. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Noodles & Company has an Earnings ESP of 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 2 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Noodles & Company has 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 revisions.

Stocks to Consider

Here are a few companies in the broader Retail-Wholesale sector that you may consider, as our model shows that they have the right combination of elements to post an 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.

The Gap, Inc. GPS has an Earnings ESP of +3.85% and a Zacks Rank #3.

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

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