Why Habit Restaurants Stock Plunged 21% in August

What happened

Shares of Habit Restaurants (NASDAQ: HABT) plummeted 21% last month, according to data provided by S&P Global Market Intelligence, after the fast-casual burger chain delivered disappointing second-quarter results.

So what

Revenue jumped 17.2% to $83.3 million, driven by the 37 restaurants Habit opened during the past year. However, comparable sales at company-operated restaurants inched up only 0.1%, down sharply from the 4% comps Habit enjoyed in the second quarter of 2016.

The company's margins also came under pressure. Food and paper costs rose 180 basis points year over year to 31.6% of revenue, while labor costs increased 30 basis points to 32.6%. In turn, adjusted net income fell to $1.7 million from $2.3 million in the year-ago quarter.

Now what

These results prompted Habit Restaurants to cut its 2017 full-year outlook, including:

• Revenue of $335 million to $338 million, down from a previous forecast of $338 million to $342 million
• Comparable sales growth of flat to 1%, down from approximately 2%
• Restaurant contribution margin of 19% to 19.5%, versus approximately 20%

With the overall restaurant industry struggling with slower traffic trends -- and minimum wage hikes likely to continue to dent restaurant margins -- Habit may be in store for more downtrodden results in the quarters ahead. Thus, its August swoon may be a prelude to a further move to the downside in the coming months.

10 stocks we like better than Habit RestaurantsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Habit Restaurants wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of September 5, 2017

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.