Why Habit Restaurants Stock Plunged 21% in August

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What happened

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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

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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.

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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.