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Chipotle (CMG) Misses Q2 Earnings & Revenues; Stock Down
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Shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) declined over 2% in afterhours trading on Jul 21, after the company reported lower-than-expected second quarter results, with both earnings and revenues missing the Zacks Consensus Estimate.
Earnings and Revenue Discussion
Adjusted earnings of 87 cents per share missed the Zacks Consensus Estimate of 98 cents by 12.6% and plunged 80.4% year over year due to a substantial decline in revenues.
Revenues plunged 16.6% to $998.4 million because of lower comps and also missed the Zacks Consensus Estimate of $1.05 billion by 4.7%.
Despite various food-safety initiatives, the company’s second-quarter revenues continued to be affected by the negative publicity associated with the E. coli and norovirus outbreaks in several states, which surfaced toward the end of 2015.
Behind the Headline Numbers
Comps tumbled 26.5% in the quarter. The decline was mainly due to a lower number of transactions in the company’s restaurants, and to a certain extent, lower average check. However, the comps decline was slightly better than the prior-quarter drop of 29.7%.
Incidentally, the company also announced a 200–300 basis point (bps) improvement in July comp while transaction trends improved even higher, most likely on the back of the company’s recently launched Chiptopia rewards program.
Meanwhile, food costs, as a percentage of revenues, were up 110 bps to 34.2% due to increased costs at the company’s suppliers associated to its new food safety measures and food waste costs. The rise in food costs was partly offset by the gain from menu price increases in select restaurants in the second half of 2015.
General and administrative expenses comprised 7.1% of the total revenue, reflecting an increase of 120 bps year over year, primarily due to sales deleverage.
Restaurant level operating margin was 15.5%, down a substantial 1250 bps from 28% recorded in the year-ago period. The decline was primarily due to lower sales, elevated food costs and higher-than-usual marketing and promotional costs.
Chipotle expects combined marketing and promo expenses to remain at elevated levels as the company plans to continue to connect with its customers to reclaim their trust and loyalty.
Notably, the company expects underlying G&A expenses for the next two quarters to stay at nearly second-quarter’s level. However, the third quarter will comprise incremental costs of roughly $10 million related to all-manager conference.
Meanwhile, for full-year 2016, the company continues to expect 220–235 new restaurant openings.
Zacks Rank & Stocks to Consider
Chipotle has a Zacks Rank #5 (Strong Sell). Better-ranked restaurant stocks are Carrols Restaurant Group, Inc. (TAST - Free Report) , Famous Dave's of America Inc. (DAVE - Free Report) and Buffalo Wild Wings Inc. . All the three stocks carry a Zacks Rank #2 (Buy).
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Chipotle (CMG) Misses Q2 Earnings & Revenues; Stock Down
Shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) declined over 2% in afterhours trading on Jul 21, after the company reported lower-than-expected second quarter results, with both earnings and revenues missing the Zacks Consensus Estimate.
Earnings and Revenue Discussion
Adjusted earnings of 87 cents per share missed the Zacks Consensus Estimate of 98 cents by 12.6% and plunged 80.4% year over year due to a substantial decline in revenues.
Revenues plunged 16.6% to $998.4 million because of lower comps and also missed the Zacks Consensus Estimate of $1.05 billion by 4.7%.
Despite various food-safety initiatives, the company’s second-quarter revenues continued to be affected by the negative publicity associated with the E. coli and norovirus outbreaks in several states, which surfaced toward the end of 2015.
Behind the Headline Numbers
Comps tumbled 26.5% in the quarter. The decline was mainly due to a lower number of transactions in the company’s restaurants, and to a certain extent, lower average check. However, the comps decline was slightly better than the prior-quarter drop of 29.7%.
Incidentally, the company also announced a 200–300 basis point (bps) improvement in July comp while transaction trends improved even higher, most likely on the back of the company’s recently launched Chiptopia rewards program.
Meanwhile, food costs, as a percentage of revenues, were up 110 bps to 34.2% due to increased costs at the company’s suppliers associated to its new food safety measures and food waste costs. The rise in food costs was partly offset by the gain from menu price increases in select restaurants in the second half of 2015.
General and administrative expenses comprised 7.1% of the total revenue, reflecting an increase of 120 bps year over year, primarily due to sales deleverage.
Restaurant level operating margin was 15.5%, down a substantial 1250 bps from 28% recorded in the year-ago period. The decline was primarily due to lower sales, elevated food costs and higher-than-usual marketing and promotional costs.
CHIPOTLE MEXICN Price, Consensus and EPS Surprise
CHIPOTLE MEXICN Price, Consensus and EPS Surprise | CHIPOTLE MEXICN Quote
Guidance
Chipotle expects combined marketing and promo expenses to remain at elevated levels as the company plans to continue to connect with its customers to reclaim their trust and loyalty.
Notably, the company expects underlying G&A expenses for the next two quarters to stay at nearly second-quarter’s level. However, the third quarter will comprise incremental costs of roughly $10 million related to all-manager conference.
Meanwhile, for full-year 2016, the company continues to expect 220–235 new restaurant openings.
Zacks Rank & Stocks to Consider
Chipotle has a Zacks Rank #5 (Strong Sell). Better-ranked restaurant stocks are Carrols Restaurant Group, Inc. (TAST - Free Report) , Famous Dave's of America Inc. (DAVE - Free Report) and Buffalo Wild Wings Inc. . All the three stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>