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Will Chipotle's (CMG) Dominance Continue with Its Q3 Earnings Report?

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Chipotle (CMG - Free Report) is set to report its third quarter results after the closing bell Tuesday, October 22. The restaurant giant’s shares have nearly doubled in 2019, rising 92.9% and easily outpacing industry peers like Cracker Barrel (CBRL - Free Report) , Starbucks (SBUX - Free Report) , and McDonald’s (MCD - Free Report) .

The company’s impressive run in 2019 is thanks, in part, to the growth initiatives CMG has undergone to drive traffic. Chipotle’s innovation has helped get it back to the growth stock it had been before a two-plus year selloff.

Let’s take a look at what has fueled the company’s recent performance and how Chipotle might perform in Q3.

Brian Niccol Spices Things Up

In February of 2018, Chipotle appointed former Taco Bell (YUM - Free Report) head, Brian Niccol, as its new CEO, replacing founder and chairman Steve Ells. The move came after Chipotle was not where it wanted to be and struggled to restructure its brand after E. Coli outbreaks linked to its food tarnished its reputation with consumers. Niccol was able to rejuvenate the company and brand through his innovative initiatives.

Chipotle has ramped up its menu innovation by adding items like queso, chorizo, and recently carne asada. The company is actively thinking of new things to add to the menu that will keep consumers coming back to try the latest add-on. Analysts believe the carne asada addition should drive the average transaction ticket up, which should bode well for the company in its final quarter of the year.

With Niccol at the helm, Chipotle has also ramped up its digital presence, which has driven its same-store sales to the strong levels they are at today. The rollout of its rewards program was also a catalyst for the growth in comp sales. Digital sales were up 99.1% year over year in Q2 and accounted for 18.2% of total sales. Further highlighting how rapidly digital sales have grown for Chipotle, last quarter's digital sales were equal to all of its digital sales for the entire year of 2016.

Outlook

Apart from its carne asada rollout, Chipotle made headlines this week by offering to cover 100% of tuition for 75 different types of business and technology degrees through a partnership with Guild Education, one of the leading education benefits companies in the country.

Chipotle’s commitment to paying employees’ tuition ties the employee to chipotle for the years required to earn the degree. This employee commitment helps Chipotle hold onto employees in a tight job market where companies like Target (TGT - Free Report) and Walmart (WMT - Free Report) compete for the labor force.

Our Q3 consensus estimates forecast Chipotle’s earnings to surge 46.3% to $3.16 per share on the back of a 12.65% sales increase to $1.38 billion. Our Key Company Metrics anticipate same store sales to grow 9.44%. Looking ahead to CMG’s full fiscal 2019 figures, estimates project earnings to soar 47.68% to $13.38 per share while revenue jumps 12.9% to $5.49 billion. Meanwhile, fiscal 2019 comp sales are precited to pop 9.1%.

Takeaway 

Chipotle’s new CEO has been able to substantially grow the business’ digital presence to help revive the company from the ground up. Its menu innovations have also kept consumers coming back. Chipotle is currently testing a quesadilla that has been received well in its test runs. Plus, the oven used to make the quesadillas can lead to more items like nachos and desserts.

The restaurant giant’s commitment to pay for eligible employee’s college tuition should help it retain a solid and loyal workforce for the foreseeable future. Chipotle’s stock is currently trading around 3% below its 52-week high of over $857 per share, and a solid quarterly report may send the stock to a new high.

CMG’s earning estimate revisions have trended higher recently to help Chipotle earn a Zacks Rank #2 (Buy).

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