) and maintains its sector underperform rating.
Analyst John Glass believes third-quarter earnings, expected next week, are not likely to mark an inflection point. He notes that grocery channel sales are still decelerating according to industry data. He estimates third-quarter systemwide comparable sales are down 2%. He maintains his below-consensus 12 cents third-quarter earnings-per-share estimate.
He cuts his 81 cents fiscal 2006 (Jan.) earnings-per-share estimate to 55 cents as he radically recasts margin assumptions. He believes operating margins are likely to decline 120 basis points year-over-year in fiscal 2006 to 8.4% on declining average unit volume growth, and sees only modest (5%) total top-line growth. He feels shares are still not cheap given margin, legal risks, and unclear growth prospects.