Will DineEquity (DIN) Let Down Investors In Q2 Earnings?

CA-based restaurant operator DineEquity, Inc. (NYSE:DIN) is scheduled to report second-quarter 2016 numbers on Aug 3, before the opening bell.

Last quarter, DineEquity posted a 5.95% negative earnings surprise. However, the company’s earnings surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 4.37%.

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

Factors Likely to Influence this Quarter

Comps at the International House of Pancakes (IHOP) brand are expected to be positive, in line with what has been the trend for the past 12 consecutive quarters. Moreover, the company’s increased focus on food, menu innovation, guest satisfaction and marketing should boost comps in the to-be-reported quarter.

However, due to the lack of adequate initiatives to boost sales, the company’s Applebee's Neighborhood Grill & Bar domestic system-wide comps weren’t encouraging in the first quarter. We expect this trend to continue in the second quarter.

Moreover, though the company is looking to build a new prototype in order to reduce costs, higher cost of sales and restaurant expenses will most likely keep profits under pressure. Also, an increase in general and administrative expenses and costs related to sales initiatives may dent the quarter’s profits.

Earnings Whispers

Our proven model does not conclusively show that DineEquity is likely to beat the Zacks Consensus Estimate 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: DineEquity has an earnings ESP of -1.26%. This is because the Most Accurate estimate stands at $1.57 per share while the Zacks Consensus Estimate is pegged higher at $1.59.

Zacks Rank: DineEquity has a Zacks Rank #4 (Sell). Please note that 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.

Stocks to Consider

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

Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) has an earnings ESP of +2.27% and a Zacks Rank #1.

Jack in the Box Inc. (NASDAQ:JACK) has an earnings ESP of +1.15% and a Zacks Rank #2.

Shake Shack Inc. (NYSE:SHAK) has an earnings ESP of +7.69% and a Zacks Rank #3.

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 >>