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Why Is Chipotle (CMG) Up 10.6% Since Last Earnings Report?
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A month has gone by since the last earnings report for Chipotle Mexican Grill (CMG - Free Report) . Shares have added about 10.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Chipotle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Chipotle Q2 Earnings Lag Estimates, Digital Sales Solid
Chipotle reported mixed second-quarter 2020 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. The bottom line missed the consensus mark after beating the same in the 10 consecutive quarters. Meanwhile, the top line outpaced the consensus estimate for the seventh straight quarter.
The company’s adjusted earnings of 40 cents per share, which missed the Zacks Consensus Estimate of 51 cents. Moreover, the bottom line declined 90% from $3.99 reported in the year-ago quarter. The decline can primarily be attributed to dismal traffic and increased expenses.
Revenues & Comparable Restaurant Sales
Quarterly revenues of $1,364.7 million surpassed the consensus mark of $1,333 million but declined 4.8% year over year. The downside can primarily be attributed to dismal in-store traffic and sharp decline in comparable restaurant sales. However, it was partially offset by new restaurant openings and robust digital sales. In the quarter under review, Chipotle opened 37 new restaurants including three relocations and closed three, taking the total restaurant count to 2,669.
Digital sales grew 216.3% year over year to $829.3 million during second-quarter 2020. Digital sales represented 60.7% of sales during the quarter. The company has increased focus on digitalization due to the coronavirus pandemic. The company is increasing digital awareness via advertising. Moreover, partnerships with Uber Eats and Grubhub are attracting new customers. The company has also expanded digital capabilities into Canada. Moreover, collaboration with all the major third-party delivery aggregators has increased orders. Although the company’s in-restaurant dining rooms are opening, its digital sales momentum remained strong in July with a mix of nearly 50%.
Comps in the second quarter decreased 9.8%, which includes a 1.9% headwind from closed restaurants. However, the company is witnessing improvement in monthly comparable sales. In April and May comparable sales were down 24.4% and 7%, respectively. In June, comparable sales increased 2%. The improvement continues in July, comparable restaurant sales are up 6.4% as month to date.
Costs, Operating Highlights & Net Income
Food, beverage and packaging costs, as a percentage of revenues, decreased 40 basis points (bps) to 33.3%. It was primarily owing to lower avocado costs, increase in menu price in late 2019, and to some extent, lower waste, freight, and paper costs.
Restaurant-level operating margin of 12.2% declined from 20.2% in the year-ago quarter. The downside was primarily due to increase in expensed related to delivery sales, sales deleverage, and temporary investments due to change in business structure on account of the pandemic. Moreover, operating expenses were impacted by the free or discounted delivery in the quarter.
Adjusted net income in the reported quarter amounted to $11.4 million, compared with $112.9 million in the prior-year quarter.
Balance Sheet
The company had $934.6 million in cash, restricted cash, and short-term investments as of Jun 30, 2020. The company doesn’t have any debt. A strong balance sheet will help the company tide over the coronavirus-induced crisis.
Inventory totaled $24.2 million as of Jun 30, 2020, down from $26.1 million as of Dec 31, 2019. Goodwill, as a percentage of total assets, was 0.4% at the end of second-quarter 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 9.67% due to these changes.
VGM Scores
At this time, Chipotle has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Chipotle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Chipotle (CMG) Up 10.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Chipotle Mexican Grill (CMG - Free Report) . Shares have added about 10.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Chipotle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Chipotle Q2 Earnings Lag Estimates, Digital Sales Solid
Chipotle reported mixed second-quarter 2020 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. The bottom line missed the consensus mark after beating the same in the 10 consecutive quarters. Meanwhile, the top line outpaced the consensus estimate for the seventh straight quarter.
The company’s adjusted earnings of 40 cents per share, which missed the Zacks Consensus Estimate of 51 cents. Moreover, the bottom line declined 90% from $3.99 reported in the year-ago quarter. The decline can primarily be attributed to dismal traffic and increased expenses.
Revenues & Comparable Restaurant Sales
Quarterly revenues of $1,364.7 million surpassed the consensus mark of $1,333 million but declined 4.8% year over year. The downside can primarily be attributed to dismal in-store traffic and sharp decline in comparable restaurant sales. However, it was partially offset by new restaurant openings and robust digital sales. In the quarter under review, Chipotle opened 37 new restaurants including three relocations and closed three, taking the total restaurant count to 2,669.
Digital sales grew 216.3% year over year to $829.3 million during second-quarter 2020. Digital sales represented 60.7% of sales during the quarter. The company has increased focus on digitalization due to the coronavirus pandemic. The company is increasing digital awareness via advertising. Moreover, partnerships with Uber Eats and Grubhub are attracting new customers. The company has also expanded digital capabilities into Canada. Moreover, collaboration with all the major third-party delivery aggregators has increased orders. Although the company’s in-restaurant dining rooms are opening, its digital sales momentum remained strong in July with a mix of nearly 50%.
Comps in the second quarter decreased 9.8%, which includes a 1.9% headwind from closed restaurants. However, the company is witnessing improvement in monthly comparable sales. In April and May comparable sales were down 24.4% and 7%, respectively. In June, comparable sales increased 2%. The improvement continues in July, comparable restaurant sales are up 6.4% as month to date.
Costs, Operating Highlights & Net Income
Food, beverage and packaging costs, as a percentage of revenues, decreased 40 basis points (bps) to 33.3%. It was primarily owing to lower avocado costs, increase in menu price in late 2019, and to some extent, lower waste, freight, and paper costs.
Restaurant-level operating margin of 12.2% declined from 20.2% in the year-ago quarter. The downside was primarily due to increase in expensed related to delivery sales, sales deleverage, and temporary investments due to change in business structure on account of the pandemic. Moreover, operating expenses were impacted by the free or discounted delivery in the quarter.
Adjusted net income in the reported quarter amounted to $11.4 million, compared with $112.9 million in the prior-year quarter.
Balance Sheet
The company had $934.6 million in cash, restricted cash, and short-term investments as of Jun 30, 2020. The company doesn’t have any debt. A strong balance sheet will help the company tide over the coronavirus-induced crisis.
Inventory totaled $24.2 million as of Jun 30, 2020, down from $26.1 million as of Dec 31, 2019. Goodwill, as a percentage of total assets, was 0.4% at the end of second-quarter 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 9.67% due to these changes.
VGM Scores
At this time, Chipotle has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Chipotle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.