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.
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.
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.