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Noodles & Company (NDLS) Q1 Earnings: What's in Store?

Noodles & CompanyNDLS is set to report first-quarter 2016 results on May 3, after the market closes. Last quarter, the company posted in-line earnings. In fact, the company has posted negative earnings surprises in three out of the trailing four quarters, translating to a negative average surprise of 52.22%.

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

Factors at Play

Higher costs and expenses as well as contracting margins have had a negative impact on Noodles & Company’s profits over the past few quarters. In fact, costs of goods sold of this fast casual restaurant are likely to be high in the first quarter owing to increased operating and labor costs as well as expenses related to the implementation of strategic initiatives, thereby hurting margins.

Again, Noodles & Company is taking all the necessary steps to boost growth. Menu innovation, like testing kids’ meal, is an important part of its strategy, complemented by limited time offers. Also, its catering program has received an overwhelming response. Like some other restaurant chains, Noodles & Company is capitalizing on digital technology, as can be seen from the rapid growth in online ordering. We believe that these initiatives would improve traffic, thereby aiding comps.

Earnings Whispers

Our proven model does not conclusively show that Noodles & Company is likely to beat estimates 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: Noodles & Company’s Earnings ESP is -14.29%. This is because the Most Accurate estimate is at a loss of 8 cents while the Zacks Consensus Estimate stands at a loss of 7 cents.

Zacks Rank: Noodles & Company has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Some stocks in the restaurant sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

The Wendy's Company WEN with an Earnings ESP of +16.67% and a Zacks Rank #2

Bojangles', Inc. BOJA with an Earnings ESP of +5.88% and a Zacks Rank #3.

Red Robin Gourmet Burgers Inc. RRGB with an Earnings ESP of +0.91% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
WENDYS CO/THE (WEN): Free Stock Analysis Report
 
BOJANGLES INC (BOJA): Free Stock Analysis Report
 
NOODLES & CO (NDLS): Free Stock Analysis Report
 
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