What's In Store For Potbelly (PBPB) This Earnings Season?

Potbelly Corporation (NASDAQ:PBPB) is set to report first-quarter 2017 results on May 2, after market close.

Last quarter, the company posted an earnings surprise of 114.29%. In fact, the Chicago-based casual-dining restaurant’s earnings outpaced/met the Zacks Consensus Estimate in all of the trailing four quarters, with an average beat of 39.82%.

Potbelly Corporation Price and EPS Surprise

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

Factors to Consider

Potbelly has been reporting positive comps over the past few quarters and we expect the trend to continue in the to-be-reported quarter as well. The company continues to develop a pipeline that will complement its core menu, while maintaining its operational efficiency. Further, it has been using catering coordinators to manage its back-line operations and to canvas business outside to drive sales. Potbelly’s continuous expansions add greatly to the top line and are expected to do so in the to-be-reported quarter as well.

Moreover, Potbelly’s investment in technology like its new app, which was launched in the first quarter itself, is also expected to boost growth of its business. Additionally, the launch of its customer engagement program – Potbelly Perks, designed to delight, inform and reward customers – also bodes well for driving traffic.

However, increased labor expenses due to minimum wage increases across some of the markets in which the company operates, might prove to be a headwind. We note that, the company’s rising cost structure is likely to hurt margins in the first quarter.

Further, in the fourth quarter conference call, Potbelly had mentioned persistent consumer headwinds leading to traffic decline that have impacted the broader restaurant industry and are likely to continue doing so.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Potbelly 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 elaborated below.

Zacks ESP: Potbelly has an Earnings ESP of -25.00%. This is because the Most Accurate estimate is 3 cents per share and the Zacks Consensus Estimate is pegged higher at 4 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Potbelly has a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some restaurant companies to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Jack in the Box, Inc. (NASDAQ:JACK) has an Earnings ESP of +4.40% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) has an Earnings ESP of +17.24% and a Zacks Rank #3.

Wingstop, Inc. (NASDAQ:WING) has an Earnings ESP of +6.67% and a Zacks Rank #3.

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