It has been about a month since the last earnings report for Chipotle Mexican Grill (CMG - Free Report) . Shares have added about 4.1% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Chipotle Q4 Earnings & Revenues Beat Estimates
Chipotle reported better-than-expected results in the fourth quarter of 2018. Adjusted earnings of $1.72 per share surpassed the Zacks Consensus Estimate of $1.39 by 23.7%. The bottom line also grew 28.4% from the year-ago quarter, backed by increased revenues and lower food costs.
Chipotle’s increased focus on augmenting customer experience by introducing food-safety programs, various sales-building initiatives and greater digital innovation have resulted in revenue growth in the fourth quarter. Further, lower expenses aided margins in the quarter under review.
Revenues and Comparable Restaurant Sales
Quarterly revenues of $1.23 billion surpassed the consensus estimate of $1.19 billion and grew 10.4% year over year. The upside is primarily attributable to improvement in comps and restaurant openings. In the quarter under review, Chipotle opened 40 restaurants and closed or relocated 12, bringing the total restaurant count to 2,491.
Comps in the quarter under review rose 6.1%, driven by an increase in average check, including 3.3% benefit from menu price increase and a 2% rise in comparable restaurant transactions.
Costs, Operating Highlights & Net Income
Food, beverage and packaging costs, as a percentage of revenues, decreased 100 basis points (bps) to 33.2%, owing to the benefit of menu price increases and relief in avocado prices, partially offset by increase in freight expenses, and higher paper and packaging costs.
General and administrative expenses were 8.5% of total revenues, reflecting an increase of 330 bps year over year, primarily due to $15.1 million related to corporate restructuring and other unusual charges, $10.8 million related to higher costs associated with annual incentive cash bonus program (AIP), and $9.2 million in higher stock compensation due to a reversal of expenses taken in the fourth quarter of 2017 for performance-based stock awards.
Restaurant-level operating margin was 17%, up 210 bps from 14.9% in the year-ago quarter. The upside was primarily driven by comps growth, partially offset by increased maintenance and repair costs, and marketing and promotional expenses.
Net income in the reported quarter summed $32 million, down from $43.8 million in the prior-year quarter.
Cash and cash equivalents as of Dec 31, 2018, were $250 million compared with $184.6 million as of Dec 31, 2017.
Inventory totaled $21.6 million as of Dec 31, 2018, up from $19.9 million as of Dec 31, 2017. Goodwill, as a percentage of total assets, was 1% at the end of the fourth quarter compared with 1.1% at the end of 2017.
Glimpse of 2018 Performance
In 2018, revenues totaled to $4.9 billion, marking an increase of 8.7% from 2017. Comps in the same period improved 4%, favored by increased average check and 4% benefit from menu price increases, partially offset by 0.8% fewer comparable restaurant transactions.
Restaurant-level operating margin was 18.7% in 2018, marking an increase from 16.9% in 2017. The improvement was driven by increases in comparable restaurant sales, combined with lower marketing and promotional spend, partially offset by wage inflation at the crew level. Adjusted earnings were $9.06 per share in 2018, outpacing the Zacks Consensus Estimate of $8.53.
For 2019, management expects comps to grow in the mid-single-digit range, with an estimated effective tax rate between 27% and 30%. The company expects to launch 140-155 restaurants.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Chipotle has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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.
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.