Restaurant companies have contended with inflation in some key commodities in the past year, which cut deeply into their bottom lines. But inflation in some of those products is expected to ebb over the next year, and some companies could see gains.
High coffee prices seriously cut into Starbucks (SBUX) profits last year, and locked in higher prices for 2012, which could cost the company 21 cents worth of EPS in 2012. But Janney Capital Markets analyst Mark Kalinowski thinks those prices could dip by 2013, and Starbucks maybe able to take advantage of lower prices.
“We believe that Starbucks will be able to lock in lower coffee costs for fiscal 2013, to some degree. An announcement on this front could come as part of the fiscal Q3 earnings release (timed for July) or fiscal Q4 earnings release (timed for September/October). If Starbucks can communicate a meaningful EPS benefit for fiscal 2013 due to lower coffee costs year-over-year, all else equal, this should help the stock.”
Goldman Sachs analyst Michael Kelter added Chipotle Mexican Grill (CMG) to his Conviction List today, in part on expectations that its food costs will go down.
“We expect upside to both same-store-sales and profit margins, as lower food costs work their way through the P&L and fixed cost leverage continues. We see a low likelihood that multiple compression will serve as an offset given (1) CMG�s early stage in its growth life cycle at 1,200 units out of a 3,000-4,000 unit potential, (2) the magnitude of potential EPS upside, and (3) the historical precedent set by prior �hyper-growth� restaurant stocks.”
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