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Why Analysts Dropped Their Estimates for Shake Shack’s Earnings

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Revised EBIT margins

After reducing same-store sales growth for the next four quarters, it’s natural that analysts also lowered their EBIT estimates for Shake Shack (SHAK) for the next four quarters.

Currently, analysts are expecting Shake Shack (SHAK) to post EBIT margins of 12.6%, 9.6%, 8.8%, and 13.3% in 3Q16, 4Q16, 1Q17, and 2Q17, respectively. Before 2Q16 results, analysts were expecting the company to post EBIT margins of 13.5%, 9.7%, 9.3%, and 14.2%, respectively. The sales deleverage from reduced SSSG and the rise in labor expenses due to the implementation of new menu items may have prompted analysts to lower their estimated EBIT margins.

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Revised EPS estimates

Despite the rise in revenue estimates for the next four quarters, analysts have marginally reduced their EPS estimates for the next four quarters. The lowering of estimated EBIT margins could have prompted analysts to lower their EPS estimates.

Before 2Q16 results, analysts were expecting the company to post EPS of $0.52, which they have now reduced to $0.51. The new estimate represents a growth of 21.4% from the corresponding quarters of the previous year.

Peer comparisons

For the next four quarters, analysts are expecting Chipotle Mexican Grill (CMG) and Panera Bread (PNRA) to post EPS growth of 9.6% and 7.4%, respectively. You can also see Chipotle’s 3Q16 expectations in Chipotle’s 3Q16 Results to Show Recovery from E. Coli Outbreak and Panera’s 3Q16 expectations in Investors Chomping at the Bit over Panera Bread’s 3Q16 Results.

Next, we’ll look at Shake Shack’s valuation multiples.

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