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Chipotle (CMG) Down 11.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Chipotle Mexican Grill (CMG - Free Report) . Shares have lost about 11.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Chipotle due for a breakout? 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 drivers.

Chipotle Q4 Earnings & Revenues Top Estimates, Rise Y/Y

Chipotle reported solid fourth-quarter 2021 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis.

Q4 Earnings & Revenue Discussion

During fourth-quarter 2021, adjusted earnings of $5.58 per share beat the Zacks Consensus Estimate of $5.18 by 7.7%. The bottom line surged 60.3% from $3.48 reported in the year-ago quarter.

Quarterly revenues of $1,960.6 million beat the consensus mark of $1,954 million by 0.3%. The top line increased 22% on a year-over-year basis. The upside was primarily driven by strength in digital sales, a rise in menu prices and new restaurant openings. In the quarter under review, Chipotle opened 78 new restaurants (including four relocations), taking the total restaurant count to 2,966.

Digital sales increased 3.8% year over year to $811.3 million during fourth-quarter 2021. Digital sales contributed 41.6% to sales during the quarter. The company witnessed a rise in order-ahead transactions, owing to enhanced guest access and convenience. This along with Chipotlanes add-ons drove the company’s performance.

During the fourth quarter, comparable restaurant sales increased 15.2% year over year, following growth of 15.1% (in third-quarter 2021), 31.2% (second-quarter 2021), 17.2% (first-quarter 2021) and 5.7% (fourth-quarter 2020). Consistent strength in digital sales, healthy demand for Smoked Brisket and benefits of menu price increases contributed to the company’s results.

Costs, Operating Highlights & Net Income

During fourth-quarter 2021, food, beverage and packaging costs, as a percentage of revenues, increased 60 basis points (bps) year over year to 31.6%. The upside was primarily driven by a rise in beef, freight and avocado costs. However, this was partially offset by benefits from menu price increases.

During the quarter, restaurant-level operating margin came in at 20.2%, up from 19.5% recorded in the year-ago quarter. The uptick was primarily backed by leverage from the comparable restaurant sales growth. However, this was partially offset by wage inflation and high costs associated with beef and freight.

Adjusted net income in the reported quarter amounted to $159.1 million compared with $99.3 million in the prior-year quarter.

Balance Sheet

Chipotle continues to impress investors with a solid financial position. As of Dec 31, the company reported cash, restricted cash and short-term investments worth $1.4 billion compared with $1.2 billion in the previous quarter. The company reported no debt along with access to a $500-million credit facility.

Inventory totaled $32.8 million as of Dec 31, 2021, compared with $26.4 million as of Dec 31, 2020. Goodwill (as a percentage of total assets) came in at 0.3% at the end of fourth-quarter 2021.

During the fourth quarter, the company repurchased $168.9 million worth of stock at an average price of $1,750. Management approved an additional $200 million (exclusive of commissions) to repurchase shares. As of Dec 31, the company had approximately $240.9 million available for the buyback program.

Development Updates

Backed by impressive unit economics and success of small-town locations, the company anticipates developing more than 7000 restaurants over the long term compared with the previous goal of 6000 restaurants. CMG emphasized building a real estate pipeline with more than 80% of the restaurants having Chipotlane in it. The company expects an annual unit growth rate in the range of 8-10%.

2021 Highlights

Total revenues in 2021 amounted to $7,547.1 million compared with $5,984.6 million in 2020.
Adjusted Net Income in 2021 totaled $724.8 million compared with $305 million in 2020.

In 2021, diluted earnings per share (EPS) came in at $25.42 per share compared with $10.73 reported in the previous year.

2022 Outlook

For first-quarter 2022, the company expects comps growth in the range of mid to high single digits.

The company expects to open 235 to 250 new restaurants in 2022. However, the new openings might face minimal construction and permit delays due to the pandemic. Also, it expects 2022 tax rate in the range of 25-27%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -10.66% due to these changes.

VGM Scores

Currently, Chipotle has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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