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Chipotle (CMG) Down 1.6% 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 1.6% in that time frame, outperforming 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 catalysts.

Chipotle Q1 Earnings & Revenues Beat Estimates

Chipotle reported better-than-expected results in the first quarter of 2019. Adjusted earnings of $3.40 per share surpassed the Zacks Consensus Estimate of $3.01 by 13%. The bottom line also grew 59.6% 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 resulted in revenue growth in the first quarter. Further, lower expenses aided margins in the quarter under review.

Revenues and Comparable Restaurant Sales

Quarterly revenues of $1.30 billion surpassed the consensus estimate of $1.26 billion by 3.1% and grew 13.9% year over year. The upside is primarily attributable to improvement in comps and restaurant openings. In the quarter under review, Chipotle opened 15 restaurants and closed two, bringing the total restaurant count to 2,504.

Comps in the first quarter rose 9.9%, driven by 2% rise in comparable restaurant transactions, offset by a 30 basis point (bps) of negative impact of deferred revenues from the Chipotle Rewards loyalty program.

Costs, Operating Highlights & Net Income

Food, beverage and packaging costs, as a percentage of revenues, decreased 20 basis points (bps) to 32.2%, owing to the benefit of menu price increases, partially offset by an increase in demand for the higher-priced steak and rise in paper costs.

General and administrative expenses were 7.8% of total revenues, reflecting an increase of 110 bps year over year primarily due to $13.1-million increase in performance bonus expenses, including non-cash stock-based compensation, bonus expenses and associated taxes. General and administrative expenses also increased due to a $3.4-million hike in outside service expenses related to the company’s sales-building initiatives. A $4.3-million increase related to corporate restructuring also added to higher overall expenses.

Restaurant-level operating margin was 21%, up 150 bps from 19.5% in the year-ago quarter. This upside was primarily driven by comps growth, and lower repairment and maintenance costs, partially offset by wage inflation, increased marketing and promotional costs, and delivery expenses.

Net income in the reported quarter summed $88.1 million, up from $59.4 million in the prior-year quarter.

Balance Sheet

Cash and cash equivalents as of Mar 31, 2019, were $277.7 million compared with $250 million as of Dec 31, 2018.

Inventory totaled $18.8 million as of Mar 31, 2019, down from $21.6 million as of Dec 31, 2018. Goodwill, as a percentage of total assets, was 0.9% at the end of the first quarter compared with 1% at the end of 2018.

2019 Outlook

For 2019, management expects comps to grow in the mid to high-single-digit range compared with the previously mentioned mid-single-digit range. The company estimates effective tax rate between 27% and 30%. It still expects to launch 140-155 restaurants in 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Chipotle has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Chipotle has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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