Why Ignite Restaurant Shares Fizzled

Why Ignite Restaurant Shares Fizzled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ignite Restaurant Group were self-destructing today, down as much as 17% after the company reported preliminary second-quarter results last night.

So what: The parent of Joe's Crab Shack and the recently acquired Macaroni Grill said revenues increased approximately 72% in the quarter to $232.1 million, the vast majority of the increase being driven by the acquisition. Backing out the purchase, sales increased just 7%. Same-store sales were even more disappointing, growing just 1.3% at legacy restaurants, which also includes a handful of Brick House Tavern + Tap locations, and falling 7.4% at Macaroni Grill, though that won't get factored into the year-over-year comparison. Finally, the company estimated adjusted EPS for the quarter at $0.02 to $0.04.

Now what: Those projections were way off Wall Street's mark, as the experts had expected an EPS of $0.35 in the quarter. Management explained the slim profits as a consequence of its heavy investment in staffing and marketing to turn Macaroni Grill sales around, and said comps at that chain had improved from negative 11% in March to negative 1% in the first four weeks of the current quarter. Those may be positive signs, but management conceded that the turnaround process is taking longer than expected. Even with the improvements, today's update seems to be a reality check for investors that this company may be only borderline profitable for at least the next few quarters. I wouldn't bite until Macaroni Grill sales are fully contributing to profits.

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The article Why Ignite Restaurant Shares Fizzled originally appeared on Fool.com.

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Originally published