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Which Fast Casual Companies Showed Higher 4Q15 Earnings Margins?

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Mar. 24 2016, Updated 11:06 a.m. ET

EBIT margins

EBIT (earnings before interest and tax) are key to investment decisions, as they indicate the efficiency of a company’s business. EBIT affect EPS (earnings per share) and should ultimately drive share prices.

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4Q15 EBIT margins

The EBIT margins of five out of the eight fast casual companies under review improved in 4Q15 over 4Q14. Being a franchise-heavy company, Panera Bread (PNRA) posted an EBIT margin of 11.4%, higher than all other fast casual restaurants. PNRA forms 0.71% of the holdings of the iShares S&P Mid-Cap 400 Growth ETF (IJK), which has also invested 0.91% in Domino’s Pizza (DPZ).

Being a franchise-heavy company, PNRA earns a portion of its revenue from franchise fees and royalties, which incur lower expenses compared to revenue earned from company-operated restaurant sales.

Chipotle Mexican Grill (CMG) posted an EBIT margin of 10.9%, which fell from 17.8% in 4Q14. The fall in the company’s margin was mainly due to negative same-store sales growth caused by an E. coli outbreak, which led to deleveraging and a fall in margins.

Shake Shack’s (SHAK) margins rose to 9.5% in 4Q15 from 0.8% in 4Q14. Fiesta Restaurant Group (FRGI) maintained its EBIT margins at 8.8% from 4Q14 to 4Q15.

Underperformers

Zoe’s Kitchen (ZOES) and Noodles & Company (NDLS) recorded lower margins in 4Q15, at 0.3% and 0.5%, respectively. ZOES’s 4Q15 margins rose from -1.9% in 4Q14, while NDLS’s margins fell from 6.2% in 4Q14. The fall in NDLS’s margins was largely due to a rise in food and packaging costs and a negative same-store sales growth rate, which led to deleveraging.

Compared to 4Q14, the 4Q15 margins of Potbelly (PBPB) and Habit Grill (HABT) improved to 3.7% and 3.8%, respectively, from 3.1% and 2.7% in 4Q14. With lower margins, these companies have the opportunity to get their business models right, which could improve their margins.

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