Shake Shack Inc At Deutsche Bank Gaming, Lodging, Leisure & Restaurants One On One Conference

Arcos Dorados Holdings Inc. ARCO reported third-quarter 2024 results, with earnings and revenues beating the Zacks Consensus Estimate. The top line increased year over year, while the bottom line fell from the prior-year quarter’s figure.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

ARCO’s Q3 Earnings & Revenue Discussion

During the third quarter, the company reported adjusted earnings per share (EPS) of 17 cents, beating the Zacks Consensus Estimate of 16 cents. The bottom line fell 39.3% year over year from 28 cents reported in the year-ago quarter.

During the quarter, the company reported revenues of $1.13 billion, beating the consensus mark of $1.09 billion. The top line increased 0.8% on a year-over-year basis.

Arcos Dorados Holdings Inc. Price, Consensus and EPS Surprise

Arcos Dorados Holdings Inc. price-consensus-eps-surprise-chart | Arcos Dorados Holdings Inc. Quote

Digital channel sales during the quarter rose 16% year over year and represented 58% of systemwide sales. The growth was driven by strong performances in the Mobile App and Delivery services, along with continued expansion of the Loyalty Program.

During the third quarter, comparable restaurant sales increased 32.1% year over year, courtesy of strong guest volume growth.

Operating Highlights

During the third quarter, operating income amounted to $79.8 million compared with $91.1 million reported in the prior-year quarter.

During the quarter, food and paper costs came in at $381.2 million compared with $376 million reported in the prior-year quarter. General and administrative expenses in the first quarter came in at $68.1 million compared with $67.8 million in the prior-year period.

Adjusted EBITDA in the third quarter came in at $125 million compared with $129.1 million reported in the prior-year quarter.

ARCO’s Balance Sheet

Total cash and cash equivalents as of Sept. 30, 2024, totaled $115.9 million compared with $196.7 million on Dec. 31, 2023.

Net debt (total financial debt minus total cash and cash equivalents) as of Sept. 30, 2024, was $598.3 million, up from $481.3 million at 2023 end.

Store Developments

During the third quarter, the company opened 19 Experience of the Future (EOTF) restaurants, all free-standing units. The Brazil division opened 11 EOTF restaurants.

ARCO’s Zacks Rank

Arcos Dorados currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Recent Retail-Wholesale Releases

Chipotle Mexican Grill, Inc. CMG reported mixed third-quarter 2024 results, with earnings beating the Zacks Consensus Estimate for the seventh consecutive quarter but revenues missing the same after beating in the preceding four quarters.

CMG reported adjusted EPS of 27 cents, outpacing the Zacks Consensus Estimate of 25 cents. The bottom line increased 17.4% from 23 cents reported in the year-ago quarter. Quarterly revenues of $2,793.6 million missed the consensus mark of $2,817 million. However, the top line rose 13% on a year-over-year basis. This upside was driven by strong comparable restaurant sales growth, backed by higher transactions of 3.3% as well as a 2.7% rise in average checks.

Shake Shack Inc. SHAK posted third-quarter fiscal 2024 results, wherein earnings and revenues beat the Zacks Consensus Estimate. Both top and bottom lines also increased on a year-over-year basis. The company ramped up its investment in marketing strategies and programs aimed at increasing guest engagement and brand awareness, even amid a challenging market environment. These efforts have paid off, as the company has achieved some of the highest brand awareness levels on record, which, in turn, is fueling robust sales and profitability growth.

SHAK’s fiscal third-quarter adjusted EPS came in at 25 cents, which beat the Zacks Consensus Estimate of 20 cents. In the prior-year quarter, the company reported adjusted EPS of 17 cents. Quarterly revenues of $316.9 million beat the consensus mark of $315 million. The top line increased 14.7% on a year-over-year basis.

BJ's Restaurants, Inc. BJRI reported third-quarter fiscal 2024 results, with earnings missing the Zacks Consensus Estimate and revenues beating the same. Both top and bottom lines increased on a year-over-year basis.

The company reported an adjusted loss per share of 13 cents, missing the Zacks Consensus Estimate of 3 cents. In the year-ago quarter, it recorded an adjusted loss per share of 16 cents. Total revenues of $325.7 million beat the consensus mark by 0.04%. The top line inched up 2.2% year over year. This upside was backed by strong guest traffic and Pizookie Meal Deal performance.

Zacks Investment Research

Serve Robotics SERV shares have surged 179.9% in the past 6 months, outperforming the Zacks Computer & Technology sector’s return of 15.2% and the Zacks IT Services industry’s rally of 19.2%.

The rise in shares can be attributed to SERV’s strong revenue growth on increased core delivery and branding revenues.

SERV’s Quarter Details

Revenues increased to $0.22 million from $0.06 million in the year-ago quarter. The increase resulted primarily from $0.04 million in revenues from Serve Robotics’ software services contract with Magna.

Serve Robotics Inc. Price and Consensus

Serve Robotics Inc. price-consensus-chart | Serve Robotics Inc. Quote

SERV's Delivery, Software and Branding revenues rose year over year to $0.11 million, $0.04 million and $0.07 million, respectively, in the third quarter of 2024.

In the third quarter of 2024, SERV operated 59 daily active robots, marking a 23% quarter-over-quarter increase and a 97% year-over-year surge. These robots collectively generated an average of 465 daily supply hours, reflecting a 21% quarter-over-quarter rise and a 108% year-over-year upsurge.

Despite the revenue boost, Serve Robotics faces profitability challenges due to high operational costs, and continued investments in technology and expansion.

Serve Robotics’ Prospects Ride on Robots & Last-Mile Delivery

SERV’s long-term prospects ride on growing demand for last-mile delivery of food and other items on partner platforms that include Uber Eats and 7-Eleven. The company, which was spun off from Uber Technologies UBER in 2021, counts NVIDIA, Uber, 7-Ventures and Delivery Hero’s corporate venture units as its investors.

Serve Robotics has expanded its partner base by forming agreements with Magna and Ouster OUST to accelerate the development of its latest robotic products.

Magna has become a contract manufacturer for SERV’s technology and the first robots are expected to roll out by the end of the fourth quarter of 2024.

Serve Robotics is on track to deploy 2,000 robots by the end of 2025 through its agreement with Uber, anticipating an annual revenue run rate of $60-$80 million once the robots are fully deployed and achieve full utilization.

SERV's expanding robotics offering has bolstered its competitive position in the last-mile delivery market, wherein major players like DoorDash and Amazon currently dominate.

Serve Robotics is expanding its Los Angeles operations to include Downtown LA, Sawtelle and Westwood. It secured delivery partnerships with Shake Shack SHAK and Wing, enhancing its service reach and market presence in the region.

The recently announced acquisition of assets of Vebu is expected to strengthen SERV’s footprint in the restaurant industry.

What Should Investors Do About SERV Stock?

Serve Robotics’ Value Score of F suggests a stretched valuation at this moment.

SERV’s sequential revenue decline in the third quarter of 2024 is concerning. The company also suffers from customer concentration.

Serve Robotics currently has a Zacks Rank #3 (Hold). We suggest investors wait for better entry points in the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Compass Group PLC (CMPGY) and Shake Shack (SHAK). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Both Compass Group PLC and Shake Shack have a Zacks Rank of # 2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.

The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.

CMPGY currently has a forward P/E ratio of 25, while SHAK has a forward P/E of 161.75. We also note that CMPGY has a PEG ratio of 2.05. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. SHAK currently has a PEG ratio of 3.01.

Another notable valuation metric for CMPGY is its P/B ratio of 8.88. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, SHAK has a P/B of 11.65.

Based on these metrics and many more, CMPGY holds a Value grade of B, while SHAK has a Value grade of F.

Both CMPGY and SHAK are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that CMPGY is the superior value option right now.

Zacks Investment Research