Earnings season can be a difficult time to trade. Many investors are searching for a quick 10 percent gain, but more often than not they are confronted with huge losses.
After strong sessions from the banks and airlines to start the season, earnings prospects appear to be picking up. Many regularly beaten-down companies are starting to show signs that they are reversing past misfortunes as earnings season hits its stride. This may not be the case for everyone though.
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Unloved companies such as Chipotle, Twitter and Deckers Outdoor are seeing expectations slide into their reports this week. These three consistently deliver slowing top and bottom line growth with stock prices to match their dismal performances.
Year-to-date stock performance
Chipotle kicks off the week with its third-quarter report tomorrow afternoon. The burrito chain's misfortunes have been well documented since the first health scare broke nearly a year ago. Sales and earnings growth are now recording double digit losses after years of remarkable gains. In its most recent report, the chain posted a 3.6 percent drop in comparable restaurant sales on a 16.6 percent decline in total revenue.
Chipotle has invested heavily in new marketing and promotional campaigns in an effort to regain customers and improve traffic trends. During the third quarter Chipotle launched several new initiatives including Chiptopia, which rewarded frequent visitors through the summer months, free kid's meals on Sunday and complimentary beverages for students. The restaurant also introduced a chorizo option at select locations in July but have since expanded nationwide following overwhelming demand.
By any estimation these initiatives won't fully reverse the losses recorded over the past year. Analysts are still confident that Chipotle will deliver double-digit losses despite its ongoing efforts.
The Estimize consensus is looking for earnings per share of $1.66 on $1.09 billion in revenue, reflecting a 63 percent decline on the bottom line and 10 percent on the top.
Similar to Chipotle, Twitter has been unable to turn things around. After a failed bidding war that left zero potential suitors, Twitter is now left to its own devices to jumpstart growth. A marked slowdown in key active user metrics has put slowing revenue growth in focus. This stagnating growth is striking compared to the increasing metrics seen from Facebook, Instagram and SnapChat. Twitter has been slow to make key product changes that have inevitably impeded engagement and user growth.
Twitter is now pulling out all the stops. Streaming deals with the NFL, NBA, and MLB are expected to attract a new source of advertising revenue, once exclusive to the cable providers. Additional live streams of major events this year such as the Presidential debates and Olympics already appear to be driving engagement.
Investors still aren't convinced that things will turn around with one good report. Analysts at Estimize have taken down earnings and revenue targets by double digits leading into Twitter's third-quarter report. Earnings for the period are now estimated to climb by 3 percent to 10 cents with sales expected to make an 8 percent jump to $609.23 million. The stock is down 20 percent in the past month and historically it falls an additional 6 percent immediately after the print.
In a separate report on Thursday, Deckers Outdoor is scheduled to release its quarterly results after the market closes. A large portion of its troubles can be blamed on a slowdown in its flagship UGG brand. In the previous quarter, net sales decreased 18.5 percent from a year earlier on a 20 percent decline in UGG sales.
Unusually warm weather, along with consumer's shift in preference for value, have had an adverse impact on results. Susquehanna recently downgraded the stock to negative from neutral. Increased promotional discounting is expected to put a drag on margins in the upcoming quarter.
Analysts are calling for earnings per share of $1.21 on $498.5 million in revenue, according to Estimize consensus data. Compared to a year earlier, that represents an 8 percent increase on the bottom line and 2 percent on the top. The stock is currently down 14 percent in the past 30 days mostly due to the recent downgrade.
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