Will Q2 Earnings Hold A Surprise For Potbelly (PBPB) Stock?

Potbelly Corporation (NASDAQ:PBPB) is set to report second-quarter 2016 results on Aug 2, after the market closes.

Last quarter, the company posted in-line earnings. The Chicago-based casual-dining restaurant chain reported average positive surprise of 3.28% in the trailing four quarters.

Let’s see how things are shaping up for the upcoming 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. Positive traffic trends, mainly driven by extensive menu innovation and aggressive marketing initiatives, are expected to drive comps.

However, increased labor expenses due to minimum wage increases across some of the markets in which Potbelly operates, might prove to be a headwind.

Also, the company’s rising cost structure is likely to hurt margins in the second quarter. In the first quarter conference call, Potbelly mentioned that it expects unfavorable mix comparisons in the second quarter. The Avocado and Mac & Cheese campaigns launched in 2015 benefitted sales which were absent in this year’s second quarter. In addition, frigid weather in Chicago at the start of second quarter as well as the recent floods in Houston and Central Texas might limit sales growth.

Earnings Whispers

Our proven model does not conclusively show that Potbelly is likely to beat earnings this quarter. That 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: The Earnings ESP for Potbelly is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 12 cents.

Zacks Rank: Potbelly has a Zacks Rank #4 (Sell).

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 stocks that investors may 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) with an Earnings ESP of +1.15% and a Zacks Rank #2.

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

Panera Bread Company. (NASDAQ:PNRA) with an Earnings ESP of +0.74% and a Zacks Rank #3.