US Restaurants Earnings Forecasts

What Earnings Forecasts Tell Us & What We Can Learn from Them

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Though not a requirement, foodservice executives traditionally comment on analyst earnings forecasts. In some instances, leaders offer important context about missed projections. For example, casual dining and fast casual operators have pointed to increasing CAPEX requirements that ate into their earnings, while quick-service chain executives have cited decreasing lunch traffic to explain why they failed to meet expectations.

In other instances, executives offer earning guidance statements, disclosing how the company foresees its own future. These comments are crucial for investors to evaluate the business’s prospects.

In 2017, consensus projections underestimated actual performance by a median (weighted) of ­2.13%. However, more than half (57%) of chains reported earnings that were within one percentage point of forecasts.

earnings forecasts accurate restaurants

Below, we examine earnings forecasts to see what to expect for 2018. We also look at past earnings surprises to determine which restaurant chains have consistently beaten or missed analysts’ estimates.

Based on this data, we highlight two strategies these winning companies have used. Beating forecasts tends to pay off on the stock market — restaurant stock prices grew at a median CAGR of ‑1.7% (2013–2017), while prices for companies that achieved positive earnings surprises more often than most grew at a 10.9% CAGR. But even private foodservice operations can learn something from the organizations that are outperforming expectations.

Polished Casual Growing Revenue and Improving Margins

The polished-dining segment, which includes both fine-dining concepts and higher-end casual-dining establishments, is anticipated to have the best margin growth in 2018, while the coffee/snack category is expected to see the highest revenue growth (combined with declining margins).

Earnings Forecasts by Segment

There’s a lot of variability between growth expectations in the coffee/snack segment: a minimum of +10.7% for Starbucks and a maximum of +53.0% for Dunkin’ Brands.  

According to 2018 earnings forecasts, Good Times Restaurants is leading the pack with an expected growth in revenue and EBITDA of 25.7% and 235.6%, respectively. EBITDA margins are also expected to increase from 2.13% to 5.69% (an improvement of 166.9%) thanks to continued COGS improvements — attributable to purchasing efficiencies, contract negotiations, and menu engineering — at its Bad Daddy’s brand. The company is also implementing scheduling tools at both Bad Daddy and Good Times Burger and Frozen Custard to refine labor hours against each half hour of projected sales.

Fine-dining the ONE Group and polished-casual J. Alexander’s have also improved their operational efficiency and are expected to witness improvements in EBITDA margins during 2018.

Coffee/Snack and Pizza Beating EPS Consensus More Often Than Other Segments

The coffee/snack segment had the most success beating EPS consensus forecasts over the last five years: companies in this segment beat expectations a median of 78% of the time.

But there’s large variability. Starbucks beat consensus almost 85% of time, while Jamba Juice only had positive surprises 29% of the time, close to the minimum among all publicly traded restaurants in the U.S.

earnings forecasts coffee snack pizza

Pizza chains also reached a high rate of positive surprises and with more consistency: Domino’s leads with 80% positive surprises, and Papa Murphy’s is on the low end with 75%.

Polished casual was the only segment with a median below 50%, indicating that surprises have mostly been negative. The ONE Group had the lowest incidence of positive surprises.

Half of the companies that have consistently beaten forecasts and enjoyed a positive five-year earnings surprise median were rewarded with returns in excess of 60%. Four out of these — including Domino’s Pizza, Darden Restaurants, Dave and Buster’s, and McDonald’s — achieved stock returns in excess of 100%.

Five companies experienced stock losses despite consistent positive earnings surprises. These declines can be caused by what is called a “whisper number” — an unofficial and unpublished EPS forecast based on expectations of individual investors versus analysts.

Whisper numbers can be considerably different from consensus estimates; therefore, stock might end up plummeting if it falls short of meeting investors’ expectations, even when it exceeds analysts’ projections.

The ONE Group — which operates high-end steak and bistro concepts all over the world — had the most significant negative earnings surprise: as a median, EPS was below consensus by 173%, due to poor operational performance and undisciplined capital allocation.

Earnings Forecasts Hits Misses

The only outlier on the list is Texas Roadhouse, which has achieved remarkable returns over the past few years despite a median earning surprise of -0.17%.

What Are Players Doing to Beat Forecasts? Investing in Tech and Remodeling Locations

Limited-service restaurants (including coffee/snacks, pizza, and quick service) consistently beat forecasts. Part of this success comes from the fact that they have lower price points and higher turnover, which increases volume. But the segment as a whole has also focused on improving food quality to compete with higher-end fast-casual concepts.

Mobile and digital assets have helped many companies, especially those in the coffee segment such like Dunkin’ Brands and Starbucks. Loyalty programs and e-commerce platforms create more revenue streams and lock in customers.

Several chains have also consistently beaten earnings forecasts thanks to extensive remodeling initiatives. Wendy’s, Domino’s Pizza, and Red Robin Gourmet Burgers are all revamping their existing locations to create an attractive and differentiated atmosphere that resonates with guests, notably millennials.


Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in franchise and expansion strategy, tech integration, and concept development. We work alongside senior executives of some of the most successful foodservice and hospitality companies to visualize, plan, and implement innovative ideas for leapfrogging the competition. Collectively, our clients post more than $100 billion in sales, span all six inhabited continents and 100+ countries, with locations totaling tens of thousands.


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