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Chipotle Joins Auto Retailers to Lift Retail Earnings Results

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The retail sector is putting up a strong showing this week with Chipotle Mexican Grill (CMG - Free Report) , Lithia Motors (LAD - Free Report) , AutoNation (AN - Free Report) and Rush Enterprises (RUSHA - Free Report) all posting strong earnings growth.

Chipotle reported earnings that exceeded the Zacks Consensus Estimate by 8.9% on revenue that was roughly in line. Revenue and earnings were up 23.5% and 74.0%, respectively from the year-ago quarter.

Digital ordering was the primary driver of sales in the last quarter, jumping 133.9% year over year to make up 50.1% of sales. March was a record month for digital sales, and included over 800,000 app downloads and the largest number of new digital customers since May 2020. Around 40% of digital orders were through the Chipotle app or website with the balance coming from partner websites.

Comp sales were up 17.2%. The company added 40 new restaurants, including 26 with Chipotlanes (highest-margin digitally ordered drive-thrus), which are proving to be the most popular option since the pandemic hit.

New menu items, menu price increases and a mix-shift to higher-margin proteins helped results. Labor cost dropped due to sales leverage and efficiencies related to digital ordering but were partially offset by wage inflation.

Most encouragingly, management expects 20-30% comps growth in the current quarter, as the broad rollout of vaccines gets more people back to fast-casual dining and more of the employees get vaccinated. However, there will be some input cost inflation, related to seasonally higher avocado prices.

Going into the earnings announcement, the Zacks Rank #3 (Hold) company with a Growth Score of A was expected to grow revenues 22.2% this year and 12.1% in the next. Its earnings were expected to grow 122.2% and 31.7%, respectively. Estimates look set to increase given the strong expectations for June.

Now for the auto retailers, which seem to be continuing their winning streak of the last couple of quarters, as people planned more road trips and stuck to their own transportation to facilitate social distancing for the family.

First up is Lithia Motors & Driveway, which beat top-line estimates by 12.4% and bottom-line estimates by 24.5%. These results were up 54.9% and 193.0%, respectively from last year.

Same-store sales increased 28%. Both new and used vehicle revenue increased by more than 50%, but new vehicles were a bit stronger. Both units and average selling prices expanded, with gross profit per unit increasing 36%. The much smaller Finance & Insurance (F&I) unit also grew strongly.

There’s some ongoing consolidation in this market and Lithia is opportunistically growing its store network even as it accelerates its omnichannel strategy through Driveway. The company has just closed one of the largest acquisitions in the industry and management considers the $15 billion deal pipeline as the most attractive in two decades.

Going into this announcement, the Zacks Rank #3 company’s revenue and earnings were expected to grow a respective 39.6% and 12.0% this year. Given the strong results, these estimates could be in for upward revisions.

Rush Enterprises earnings also beat the Zacks Consensus by a mile (49.1%). Earnings almost doubled year-over year from 41 cents to 79 cents due to expense management. Revenues were down 4.2%.

While the revenue decline is partly attributable to bad weather in some southern states, the real issue is with the component shortage ravaging the entire industry. However, Rush continues to see strong demand for both its aftermarket offerings (especially from refuse, construction and public sector customers) and Class 8 new and used trucks. Demand for Class 4 through 7 trucks is currently being impacted by softness at lease and rental and food service customers, production shut downs at some manufacturers, as well as component shortages.

While supply constraints will continue to impact new commercial vehicle supply for a few more quarters, the company will benefit from the recovering economy. Management is in fact looking to gain share in both Class 8 and Class 4 through 7. The dealership network is expected to fill gaps in parts supply that will help Rush service the expected strength in aftermarket demand through the rest of 2021.

The Zacks Rank #3 company is currently expected to grow earnings 41.2% this year and 13.5% in the next.

And finally, we have AutoNation, which reported sales of $5.90 billion that jumped 26.5% year over year and beat the Zacks Consensus by 16.7%. Earnings were even stronger, growing 206.6% and beating by 55.0%.

Same store revenue and gross profits were up 27% each. New vehicle units grew 22% (gross profit up 61%) and used vehicle units 28% (gross profit up 17%). Domestic, Import and Premium Luxury segment revenue grew 24.5%, 29.9% and 30.1%, respectively while income grew 119%, 91% and 98%, respectively.

The company continues to aggressively build its dealer network even as it cautions about chip shortage impacting the industry through the rest of the year and into 2022. The strong demand across price ranges, coupled with supply constraints has allowed the company to raise prices.

Going into the announcement, the Zacks Rank #1 (Strong Buy) company was expected to grow revenue and earnings 8.1% and 6.7%, respectively. These estimates are surely headed up.

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