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Can Strong Sales Drive Earnings for Chipotle (CMG) in Q4?
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Chipotle Mexican Grill, Inc. (CMG - Free Report) is scheduled to report fourth-quarter 2017 earnings results on Feb 6, after market close.
In the last reported quarter, the company missed earnings by 14.74%. However, it recorded earnings beats in three of the trailing four quarters, the average positive earnings surprise being 4.88%.
Chipotle has been particularly plagued by negative publicity related to food-borne illnesses, which surfaced toward 2015-end and continued through 2016. Since then, the company has undertaken many safety measures and sales-building initiatives to revive its top line.
The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $1.12 billion, reflecting 8.5% year-over-year growth. In the first nine months of 2017, revenues grew 17.3% year over year.
Notably, shares of the company have lost 23.3% in the past year, massively underperforming the industry’s gain of 20.7%.
Let’s take a look at how the company’s top and bottom lines will shape up in the to-be-reported quarter.
Sales-Boosting Initiatives to Payoff
We believe that revenue growth at Chipotle is dependent on sales-building strategies. The company is continuously trying to recover sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence and enhancement of guest experience. Toward this end, Chipotle rolled out queso nationally in the third quarter of 2017 following which the company witnessed an immediate uptick in sales and expects higher sales in the to-be-reported quarter as well.
Further, marketing activities like transaction-driving promotions and advertising along with increased focus on delivery services and new ordering digital partnerships are likely to drive the top line in the quarter to be reported.
Notably, to deal with the negative publicity from food security issues, Chipotle uses only 51 real ingredients to prepare its entire range of food items, in stark contrast to most other fast food chains. Also, the company has undertaken an inclusive assessment of its food safety programs and practices to enhance the quality and safety of food.
Chipotle is also focusing on developing new food safety protocols, which include DNA-based testing of several ingredients coupled with changes to food preparation and food handling practices. The company’s enhanced focus on making better food accessible to everyone should also drive traffic in the fourth quarter.
High Costs Unlikely to Hurt Earnings
In order to regain consumer trust, post the food security issue, Chipotle has been incurring high marketing and promo expenses which are likely to dent profits. In fact, Chipotle expects fourth-quarter combined marketing and promo costs to account for nearly 4% of sales as the majority of its national ad campaign has occurred in the quarter.
Also, the implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may continue to keep profits under pressure.
Despite the possibility of a further spike in costs, the consensus estimate for fourth-quarter earnings is pegged at $1.35, reflecting 145.5% year-over-year growth and a lesser impact of costs on earnings. We believe that the company’s strong sales will significantly offset cost impacts in the fourth quarter.
Our Quantitative Model Does Not Predict a Beat
Chipotle does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
Zacks ESP: The company has an Earnings ESP of -1.19%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Chipotle has a Zacks Rank #3.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Chipotle Mexican Grill, Inc. Price and EPS Surprise
Here are a few stocks from the restaurant space that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Cheesecake Factory (CAKE - Free Report) has an Earnings ESP of +0.44% and a Zacks Rank #3 (Buy). The company is scheduled to report its quarterly numbers on Feb 21.
Fogo de Chao has an Earnings ESP of +2.11% and a Zacks Rank #3. The company is expected to release its quarterly numbers on Mar 13.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Can Strong Sales Drive Earnings for Chipotle (CMG) in Q4?
Chipotle Mexican Grill, Inc. (CMG - Free Report) is scheduled to report fourth-quarter 2017 earnings results on Feb 6, after market close.
In the last reported quarter, the company missed earnings by 14.74%. However, it recorded earnings beats in three of the trailing four quarters, the average positive earnings surprise being 4.88%.
Chipotle has been particularly plagued by negative publicity related to food-borne illnesses, which surfaced toward 2015-end and continued through 2016. Since then, the company has undertaken many safety measures and sales-building initiatives to revive its top line.
The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $1.12 billion, reflecting 8.5% year-over-year growth. In the first nine months of 2017, revenues grew 17.3% year over year.
Notably, shares of the company have lost 23.3% in the past year, massively underperforming the industry’s gain of 20.7%.
Let’s take a look at how the company’s top and bottom lines will shape up in the to-be-reported quarter.
Sales-Boosting Initiatives to Payoff
We believe that revenue growth at Chipotle is dependent on sales-building strategies. The company is continuously trying to recover sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence and enhancement of guest experience. Toward this end, Chipotle rolled out queso nationally in the third quarter of 2017 following which the company witnessed an immediate uptick in sales and expects higher sales in the to-be-reported quarter as well.
Further, marketing activities like transaction-driving promotions and advertising along with increased focus on delivery services and new ordering digital partnerships are likely to drive the top line in the quarter to be reported.
Notably, to deal with the negative publicity from food security issues, Chipotle uses only 51 real ingredients to prepare its entire range of food items, in stark contrast to most other fast food chains. Also, the company has undertaken an inclusive assessment of its food safety programs and practices to enhance the quality and safety of food.
Chipotle is also focusing on developing new food safety protocols, which include DNA-based testing of several ingredients coupled with changes to food preparation and food handling practices. The company’s enhanced focus on making better food accessible to everyone should also drive traffic in the fourth quarter.
High Costs Unlikely to Hurt Earnings
In order to regain consumer trust, post the food security issue, Chipotle has been incurring high marketing and promo expenses which are likely to dent profits. In fact, Chipotle expects fourth-quarter combined marketing and promo costs to account for nearly 4% of sales as the majority of its national ad campaign has occurred in the quarter.
Also, the implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may continue to keep profits under pressure.
Despite the possibility of a further spike in costs, the consensus estimate for fourth-quarter earnings is pegged at $1.35, reflecting 145.5% year-over-year growth and a lesser impact of costs on earnings. We believe that the company’s strong sales will significantly offset cost impacts in the fourth quarter.
Our Quantitative Model Does Not Predict a Beat
Chipotle does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
Zacks ESP: The company has an Earnings ESP of -1.19%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Chipotle has a Zacks Rank #3.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Chipotle Mexican Grill, Inc. Price and EPS Surprise
Chipotle Mexican Grill, Inc. Price and EPS Surprise | Chipotle Mexican Grill, Inc. Quote
Stocks to Consider
Here are a few stocks from the restaurant space that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Potbelly (PBPB - Free Report) has an Earnings ESP of +4.76% and a Zacks Rank #3. The company is expected to release its quarterly numbers on Feb 13. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cheesecake Factory (CAKE - Free Report) has an Earnings ESP of +0.44% and a Zacks Rank #3 (Buy). The company is scheduled to report its quarterly numbers on Feb 21.
Fogo de Chao has an Earnings ESP of +2.11% and a Zacks Rank #3. The company is expected to release its quarterly numbers on Mar 13.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>