By Noel Randewich
SAN FRANCISCO (Reuters) – Wall Street is expecting a solid helping of earnings from McDonald’s <MCD.N> and other restaurant operators that are preparing to serve up quarterly results over the next few days.
Restaurants have been major winners as consumers spend more of their disposable income on going out and less on clothes and other retail products, a trend that could become more apparent following recent improvements in U.S. employment and wages.
They have also benefited from low commodity costs that make it less expensive to prepare food, helping make the restaurant industry a bright spot in a panorama of overall lower earnings for major U.S. companies.
“The millennial consumer is much more focused on purchasing experiences over goods,” choosing dining out or travel over sneakers and designer jeans, said David Schiegoleit, managing director of investments for the Private Client Reserve at U.S. Bank in Los Angeles. That is why his company favors restaurant stocks over other consumer discretionary shares, he said, although he declined to specify which ones.
Restaurant companies in the S&P 1500 are expected on average to report second-quarter earnings up 7.8 percent from the year before, according to data compiled by Thomson Reuters I/B/E/S. For the third quarter, analysts on average see their earnings rising 10 percent.
By comparison, aggregate expectations for the S&P 1500 are for a 3.6 percent dip in second-quarter earnings and then 1.7 percent growth in the third quarter.
On Tuesday, McDonald’s hands in its second-quarter report, with investors looking for growth to be delivered by all-day breakfasts and other new meal deals.
Shares in the world’s largest fast-food chain are up 33 percent over the past year as the company simplifies sprawling menus and improves speed and service to counter competition from the likes of Burger King, Dunkin’ Donuts <DNKN.O> and Shake Shack Inc <SHAK.N>.
Suggesting investors expect additional progress from McDonald’s, its shares recently traded at 22 times expected earnings, compared to a 10-year median of 16.3, according to Thomson Reuters data.
Also expected to report on Tuesday are BJ’s Restaurants Inc <BJRI.O>, Buffalo Wild Wings Inc <BWLD.O>, Cheesecake Factory Inc <CAKE.O> and Panera Bread Co <PNRA.O>.
Early results have been mixed: Shares of Domino’s Pizza <DPZ.N> have surged 8 percent since Thursday after its quarterly sales beat expectations. On the same day, Dunkin’ Brands Group’s <DNKN.O> quarterly earnings met expectations although its revenue disappointed as fewer customers visited its Dunkin’ Donuts and Baskin-Robbins restaurants in the United States. Its shares have since risen nearly 2 percent.
(Reporting by Noel Randewich; Editing by Phil Berlowitz)