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Jun 09, 2024 |
Chipotle Mexican Grill, Inc. (NYSE: CMG)$3,169.02 USD ( As of 06/07/24 ) |
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Data Overview
| 52 Week High-Low | $3,239.23 - $1,781.48 |
|---|---|
| 20 Day Average Volume | 234,883 |
| Beta | 1.25 |
| Market Cap | 87.04 B |
| Dividend / Div Yld | $0.00 / 0.00% |
| Industry | Retail - Restaurants |
| Industry Rank | 163 / 248 (Bottom 34%) |
| Current Ratio | 1.65 |
| Debt/Capital | 0.00% |
| Net Margin | 12.70% |
| Price/Book (P/B) | 25.90 |
| Price/Cash Flow (P/CF) | 55.67 |
| Earnings Yield | 1.75% |
| Debt/Equity | 0.00 |
| Value Score |  |
|---|---|
| P/E (F1) | 57.31 |
| P/E (F1) Rel to Industry | 25.80 |
| PEG Ratio | 2.52 |
| P/S (F1) | 8.53 |
| P/S (TTM) | 8.53 |
| P/CFO | 55.67 |
| P/CFO Rel to Industry | 1.95 |
| EV/EBITDA Annual | 44.14 |
| Growth Score |  |
|---|---|
| Proj. EPS Growth (F1/F0) | 23.27% |
| Hist. EPS Growth (Q0/Q-1) | 41.86% |
| Qtr CFO Growth | 2.27 |
| 2 Yr CFO Growth | 174.77 |
| Return on Equity (ROE) | 43.74% |
| (NI - CFO) / Total Assets | -26.28 |
| Asset Turnover | 1.28 |
| Momentum Score | |
|---|---|
| 1 week Volume change | 11.44% |
| 1 week Price Cng Rel to Industry | 3.41% |
| (F1) EPS Est 1 week change | 0.00% |
| (F1) EPS Est 4 week change | 0.03% |
| (F1) EPS Est 12 week change | 4.13% |
| (Q1) EPS Est 1 week change | 0.01% |
Summary
Chipotle’s third-quarter adjusted earnings of $1.33 per share lagged the Zacks Consensus Estimate by 14.7% but rose notably on a year-over-year basis. Revenues increased 8.8% to $1.128 billion and were almost in line with the consensus mark. Meanwhile, comps grew a mere 1% in the quarter despite the highly-anticipated nationwide roll-out of queso cheese dip. We note that, 2017 has been a challenging year for Chipotle. Though initially sales somewhat recovered from the massive food safety scandal, which surfaced toward 2015-end, a fresh round of food-safety scare this summer once again raised alarming questions. In fact, Chipotle shares have underperformed the industry over the last three months. Nevertheless, various sales and technology driven initiatives undertaken should entice customers. Still, higher costs are likely to impact margins, while a choppy sales environment in the U.S. restaurant space might limit revenue growth.
Elements of the Zacks Rank
Agreement Estimate Revisions (60 days)
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100% Q1 (Current Qtr)Revisions: 12 Up: 12 Down: 0 |
58% Q2 (Next Qtr)Revisions: 12 Up: 5 Down: 7 |
100% F1 (Current Year)Revisions: 14 Up: 14 Down: 0 |
93% F2 (Next Year)Revisions: 14 Up: 13 Down: 1 |
Magnitude Consensus Estimate Trend (60 days)
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Upside Zacks Consensus Estimate vs. Most Accurate Estimate
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Surprise Reported Earnings History
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Average 4 Qtr Surprise |
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The data on the front page and all the charts in the report represent market data as of 06/07/24, while the report's text is as of 10/30/2017
Overview
Founded in 1993 and based in Denver, CO, Chipotle Mexican Grill Inc. (CMG) operates quick-casual and fresh Mexican food restaurant chains. The company offers a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. Chipotle restaurants feature free-range, hormone-free pork, natural chicken and other meat products cooked through traditional methods and served in a unique atmosphere. Chipotle classifies its restaurants as end-caps (at the end of a line of retail chains), in-lines (in a line of retail chains), free-standing units and others.
As of Sep 30, 2017, the company had more than 2,300 restaurants across the United States and 36 Chipotle outlets outside the country. The company also has eight non-Chipotle restaurants. Further, it holds an equity stake in a consolidated entity that owns and operates seven Pizzeria Locale units, a fast casual pizza concept. Notably, in March 2017, the company closed all 15 of its ShopHouse Southeast Asian Kitchen restaurants, serving fast casual, Asian inspired cuisine as the brand failed to meet sales expectations and did not demonstrate the ability to support "an attractive unit economic model.”
Notably, the company manages its operations and restaurants based on eleven regions that make one reportable segment.
Reasons To Sell:
Food-safety issues, rising costs and a soft consumer spending environment in the U.S. restaurant space remain potent headwinds
Food-Safety Issues Hurt Chipotle: Throughout 2016 Chipotle’s results continued to be affected by the negative publicity related to the food-borne illnesses, which surfaced toward 2015-end. As a safety measure, the fast casual chain was forced to close several outlets. Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, these incidents dealt a severe blow to Chipotle’s sales. Evidently, the company’s earnings and revenues came under tremendous pressure last year. Moreover, comps witnessed a decline of 20.4% in full-year 2016.
Though the company is on the road to recovery, it now expects sales to rise 6.5% (earlier high-single digits) at established locations in 2017. Thus, we believe, it will take time for the company to completely restore its economic model as well as customers’ trust and return to its former glory.
Moreover, the closure of a Washington-area outlet this July due to an apparent norovirus alert started a fresh round of food-safety scare. Evidence of rodents was found at a Dallas outlet, further adding to the woes.
Challenging Macro Environment in the U.S.: Over the last few quarters, the U.S. restaurant space has not been too enticing for investors. Despite economic growth, somewhat lower energy prices and higher income, consumers increased their spending only modestly on dining out, which resulted in low consumption. This is because, along with wage growth, inflation is also on the rise, which translates to lower real income and thus less disposable income. The situation has taken a worse turn, thanks to higher health care costs and tightened credit availability in the United States.
As consumers demand high-quality products at lower prices, it is pushing grocery stores to decrease their food prices in order to remain competitive. This is resulting in a bigger gap between food-at-home and food-away-from-home indices.
Thus, same-store sales growth has been dull in a difficult sales environment. Traffic too has been weak. In fact, the third quarter of 2017 marked the seventh consecutive quarter of negative comp sales for the restaurant industry as a whole, making the mood somber. As a result, the company’s sales have come under pressure.
Slowdown in New Restaurant Openings: Notably, the company has reduced the number of planned restaurant openings in 2018 compared with 2017 levels. The reduction comes as the company aims to focus on operational excellence, including improving its training, culture, and elevating guest experience in its existing restaurants. However, the slowdown in development plan is likely to dent sales growth.
Cost Issues Keeping Profits Under Pressure: Chipotle continued efforts to connect with its customers in order to retrieve their trust and loyalty as well as bring them back to its stores on the back of high marketing and promo expenses, had hurt its profitability in 2016. Moreover, costs to support the company’s newly designed food safety program impacted the company’s profitability.
The company’s endeavors to continue using a mix of marketing programs designed to drive traffic and build loyalty with its customers has affected profitability so far in 2017 as well. In fact, Chipotle expects fourth-quarter combined marketing and promo costs to account for nearly 4% of sales as the majority of its national ad campaign is occurring in the quarter.
Also, implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may continue to keep profits under pressure.
Cutthroat Competition: Competition among fast-casual, quick-service and casual dining segments of the restaurant industry is expected to remain fierce with respect to price, food quality, service, location and concept, which may adversely impact Chipotle’s operating margins and profits. Particularly, the company is facing price competition from low cost “value meal” menu offerings of fast-casual and quick-service segments of the industry.
Stock Price Movement: Shares of the company underperformed the industry in the last three months. The stock was down 19.7%, while the broader industry grew 3.1% during the same time period. This price performance is further backed by negative estimate revisions. Estimates for current quarter and year have moved down 24.7% and 10.3%, respectively, in the last 60 days, reflecting ongoing pessimism in the stock. Going forward, renewed food safety concerns along with high costs limit the upside potential of the stock.
Risks
- Strong Brand Recognition & Changes in Board: Chipotle — one of the most recognized fast casual Mexican restaurant chains in the U.S. — boasts a viable business strategy. The fast-casual, a fresh and growing concept, is positioned between fast food and casual dining restaurants. They offer more customized, freshly prepared and high quality food than traditional Quick Service Restaurants (QSR) in an upscale and inviting ambiance. The restaurateur offers food freshly prepared from premium ingredients (using gourmet cooking techniques) in an attractive environment. The company has some distinguishing features such as non-standardized layouts, a unique décor, open-view kitchen and an ordering process which allows customers to see the food being assembled.
Meanwhile, in December 2016, the company’s board of directors discarded the co-CEO model and made Steve Ells the company’s sole CEO in order to deal with the ongoing challenges in a better way. Ells particularly aims to focus on simplifying restaurant operations so as to offer better service and healthier food to enhance guest experience and attract customers. Along with this, the company added four new members to its board of directors in order to rejuvenate the board. It believes that the move has been extremely productive for the company.
- Increased Focus on Food Safety: In March 2017, Chipotle fulfilled its pledge of using no added colors, flavors or preservatives of any kind in any of its ingredients. In fact, the company now makes use of only 51 real ingredients to prepare all of its food, in stark contrast to most other fast food chains.
Notably, Chipotle claims that mostly every fast food chain has chosen the simpler path of merely switching from artificial colors, flavors, sweeteners and preservatives to “natural” versions of the same additives that serve the same purpose. It is here that Chipotle alleges to make a difference altogether by avoiding the usage of industrial additives of any kind, artificial or natural, and focusing on preparation of fresh food using classic cooking techniques.
In fact, Chipotle has long been a pioneer in serving superior quality ingredients including the use of local and organically grown produce, dairy from cows raised on pasture, and meat from animals raised without hormones or antibiotics. Moreover, none of the ingredients used in Chipotle's food have been genetically modified.
Besides, the company has undertaken an inclusive assessment of its food safety programs and practices to ensure the quality and safety of food. Chipotle is also focusing on developing new food safety protocols which include DNA-based testing of several ingredients coupled with changes to food preparation and food handling practices. Improvement in food handling, testing and food preparation procedures is the company’s top priority. To achieve this, Chipotle has significantly expanded training, food safety inspections and third-party as well as internal audits at its restaurants.
The company’s enhanced focus on making better food accessible to everyone should thus also aid in bringing back health-conscious customers.
- Various Initiatives to Spur Growth: Chipotle is working hard to strengthen its brand and recover sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, enhancement of guest experience by retraining workers, technology-driven convenience, faster throughput and more aggressive brand marketing.
The company especially believes that there is an opportunity to excite current customers and attract new ones through thoughtful menu development. In this regard, the company has opened the Chipotle Next Kitchen, where it explores changes to its menu. Notably, the Next Kitchen is primarily intended to test the operational impact of potential new menu items. Post evaluation therein, the new items are put into wider consumer testing in various markets to determine customer acceptance. Moreover, in order to enhance the effectiveness of the new launches, the company plans to accompany them with extensive advertising campaigns.
In fact, in the third quarter of 2017, Chipotle rolled out queso nationally. The launch came on the back of a large-scale consumer test in more than 350 restaurants, during which the company experienced encouraging sales and research results. Following the launch, the company witnessed an immediate sales lift, which however, leveled off after initial trial. The queso advertising campaign, which consists of television, digital, and social, continues through mid-November and is expected to somewhat drive sales.
Notably, the company’s robust marketing activities, which includes a combination of brand-building efforts and transaction-driving promotions and advertising are resulting in a steady inflow of new customers. The company is also likely to implement a menu price increase in the fourth quarter that should boost comps. Also, management is designing a new beverage program for Chipotle, which includes a top to bottom redesign of the beverages it serves and how they are merchandised to customers.
Meanwhile, previously, Ells announced the roll out of a new compensation system for its restaurant managers, restaurateurs and field leaders, which is more closely tied to guest experience. The program is aimed at enhancing and streamlining employee hiring, training as well as incentives with the end goal of improving customer experience, the look of dining rooms and service speed.
Moreover, the company is making changes to the design of its existing and new restaurants to optimize them for digital orders, new types of ordering formats, and new menu items. This includes the first ever Chipotle vehicular pickup window that will be opening at an Ohio restaurant this fall.
Increased focus on delivery services might continue to augment the top line, going forward, Meanwhile Chipotle recently entered into a new ordering partnership with Facebook via which Facebook users can order food from Chipotle using popular delivery services such as Grubhub and delivery.com, among others. Such innovative partnerships to make it more convenient for guests to engage with Chipotle also bode well for sales growth.
Also, the company is positive on the prospects of catering and believes it to be a sustained growth driver for Chipotle. Catering sales have been strong of late given several improvements launched last year including online ordering, payment, and delivery. Going forward, the company is piloting new catering offerings and expects these changes to significantly broaden the appeal and increase the frequency and accessibility of this service.
On the back of these initiatives, the company aims to drive increased customer visits and loyalty, going forward.
- Strengthening Digital Capabilities: The digital wave has hit the U.S. fast casual restaurant sector as an increasing number of restaurants are deploying technology to enhance guest experience. Chipotle is also prioritizing its e-Commerce program to gain customer confidence.
The company is moving aggressively to make digital ordering more appealing to its customers and more efficient for its restaurants, in order to drive digital sales and bring back customers. In the regard, Chipotle has redesigned and simplified its online ordering site, enabled online payment for catering, allowed for online meal customizations and integrated with several well-known third-party providers for delivery.
In fact, since the rollout of its “Smarter Pickup Times” technology, there has been a 51% increase in digital orders. As the company’s digital orders are made on a second make line, it allows it to deliver excellent throughput and enhance the experience of customers who are increasingly moving to digital ordering. In fact, second make line sales continue to garner a greater percentage of overall sales and the momentum is expected to continue. Notably, the company’s new technology-enabled second make line is currently active in 62 restaurants with plans in place to install the facility in over 200 restaurants by end of the year.
Also, the company boasts a robust innovation pipeline, with several new capabilities set to launch in the near-term. Particularly, the new Chipotle app, available on both iOS and Android, is scheduled to launch on November 6. Apart from significant improvements in user experience and ease of ordering, the company will be launching new capabilities that will enhance the guest experience, its marketing capabilities, and speed of service.
Though these are still early days, the company believes that it is positioned to be a leader in digital given the momentum and customer reaction and results, witnessed so far.
Last Earnings Report
Quarter Ending 03/2024
| Report Date | Apr 24, 2024 |
|---|---|
| Sales Surprise | 1.01% |
| EPS Surprise | 14.96% |
| Quarterly EPS | 13.37 |
| Annual EPS (TTM) | 47.74 |
Chipotle’s Q3 Earnings Miss Estimates
Chipotle reported earnings of 69 cents per share, up significantly from the prior-year quarter earnings of 27 cents per share. Notably, the bottom line included effects from a data breach in April 2017 on its restaurant's payment system.
Precisely, management cited a 64 cent per share impact associated to the data security incident and a 13 cent impact from Hurricanes Harvey and Irma on the quarter’s earnings.
Excluding the effects of the data breach, adjusted earnings came in at $1.33 per share, far below the Zacks Consensus Estimate $1.56 per share.
Total revenue rose 8.8% from the year-ago quarter to $1.128 billion primarily driven by new restaurant openings and somewhat by increase in comps. Meanwhile, revenues were almost in line with the consensus mark of $1.134 billion.
Behind the Headline Numbers
Comps grew a mere 1% in the quarter despite the highly-anticipated nationwide roll-out of queso cheese dip. This uptick was significantly lower than the prior-quarter growth of 8.1%.
Meanwhile, food costs, as a percentage of revenues, decreased 10 bps to 35% given reduction in paper cost and usage as well as benefit of menu price increases in select restaurants during second-quarter of 2017. These were somewhat offset by higher avocado and beef prices as well as steak making up a higher portion of its product mix compared to the year-ago quarter.
General and administrative expenses comprised 8.8% of the total revenue, reflecting an increase of 120 bps year over year.
Restaurant level operating margin was 16.1%, up 200 bps from 14.1% recorded in the year-ago quarter. The upside was primarily driven by reduced marketing and promotion expense and labor efficiencies.
Guidance for 2017
Chipotle now projects comps to increase nearly 6.5% in 2017 compared with prior expectation of an increase in high-single digits. Additionally, new restaurant openings are anticipated to be slightly below the low end of the previously guided range of 195–210.
2018 View
Management intends to open 130 to 150 new restaurants in 2018. By slowing down the new openings, the company aims to better focus on already opened restaurants.
Industry Analysis(1)Zacks Industry Rank: NA
Top Peers
| Darden Restaurants, Inc. (DRI) |
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| Yum China (YUMC) |
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| Yum! Brands, Inc. (YUM) |
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| Restaurant Brands International Inc. (QSR) |
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| Bloomin' Brands, Inc. (BLMN) |
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| Texas Roadhouse, Inc. (TXRH) |
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| Domino's Pizza Inc (DPZ) |
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| Arcos Dorados Holdings Inc. (ARCO) |
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| Brinker International, Inc. (EAT) |
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Industry Comparison Retail - Restaurants | Position in Industry: 8 of 40 |
Industry Peers |
| CMG |
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|---|---|
| Market Cap | 87.04 B |
| # of Analysts | 14 |
| Dividend Yield | 0.00% |
| Value Score | |
| Cash/Price | 0.02 |
| EV/EBITDA | 44.14 |
| PEG Ratio | 2.52 |
| Price/Book (P/B) | 25.90 |
| Price/Cash Flow (P/CF) | 55.67 |
| P/E (F1) | 57.31 |
| Price/Sales (P/S) | 8.53 |
| Earnings Yield | 1.75% |
| Debt/Equity | 0.00 |
| Cash Flow ($/share) | 56.93 |
| Growth Score | |
| Hist. EPS Growth (3-5 yrs) | 41.86% |
| Proj. EPS Growth (F1/F0) | 23.27% |
| Curr. Cash Flow Growth | 29.49% |
| Hist. Cash Flow Growth (3-5 yrs) | 27.96% |
| Current Ratio | 1.65 |
| Debt/Capital | 0.00% |
| Net Margin | 12.70% |
| Return on Equity | 43.74% |
| Sales/Assets | 1.28 |
| Proj. Sales Growth (F1/F0) | 14.97% |
| Momentum Score | |
| Daily Price Chg | 2.02% |
| 1 Week Price Chg | 3.41% |
| 4 Week Price Chg | -2.17% |
| 12 Week Price Chg | 14.97% |
| 52 Week Price Chg | 55.30% |
| 20 Day Average Volume | 234,883 |
| (F1) EPS Est Wkly Chg | 0.00% |
| (F1) EPS Est Mthly Chg | 0.03% |
| (F1) EPS Est Qtrly Chg | 4.13% |
| (Q1) EPS Est Mthly Chg | 0.10% |
| X Industry | S&P 500 |
|---|---|
| 1.09 B | 33.94 B |
| 6.5 | 18 |
| 0.00% | 1.58% |
| - | - |
| 0.06 | 0.04 |
| 9.71 | 14.63 |
| 1.77 | 2.14 |
| 2.52 | 3.34 |
| 9.91 | 13.54 |
| 19.14 | 18.26 |
| 0.76 | 2.70 |
| 4.82% | 5.47% |
| 0.15 | 0.62 |
| 2.76 | 8.64 |
| - | - |
| 11.47% | 9.87% |
| 8.53% | 7.49% |
| 11.37% | 3.70% |
| 5.43% | 6.81% |
| 0.66 | 1.22 |
| 30.52% | 39.29% |
| 3.44% | 11.99% |
| 3.24% | 16.63% |
| 0.97 | 0.54 |
| 3.15% | 3.99% |
| - | - |
| -1.16% | -0.11% |
| -1.43% | 1.32% |
| -4.83% | 2.38% |
| -4.54% | 4.49% |
| -11.68% | 24.38% |
| 241,898 | 2,016,919 |
| 0.00% | 0.00% |
| 0.00% | 0.00% |
| -1.31% | 0.36% |
| 0.00% | 0.00% |
| DRI | YUMC | YUM |
|---|---|---|
| 17.73 B | 13.71 B | 39.42 B |
| 13 | 4 | 9 |
| 3.53% | 1.82% | 1.91% |
 | |  |
| 0.01 | 0.17 | 0.02 |
| 11.86 | 7.84 | 20.09 |
| 1.52 | 1.66 | 2.26 |
| 8.13 | 2.10 | NA |
| 13.11 | 11.24 | 24.10 |
| 15.54 | 16.11 | 24.83 |
| 1.58 | 1.24 | 5.61 |
| 6.44% | 6.20% | 4.03% |
| 0.63 | 0.28 | -1.44 |
| 11.33 | 3.13 | 5.81 |
| | |
| 20.78% | -0.65% | 11.75% |
| 8.02% | 9.21% | 9.04% |
| 3.64% | 23.57% | 12.00% |
| 8.33% | 4.26% | 6.67% |
| 0.39 | 1.39 | 1.49 |
| 38.63% | 22.05% | NA |
| 9.24% | 7.49% | 22.92% |
| 49.94% | 11.90% | -18.64% |
| 1.01 | 0.94 | 1.15 |
| 4.76% | 7.08% | 8.74% |
|  | |
| -0.33% | -1.28% | 0.21% |
| 1.39% | 0.37% | 4.44% |
| 0.20% | -7.03% | 1.71% |
| -13.62% | -16.14% | 2.29% |
| -8.26% | -41.09% | 4.89% |
| 978,193 | 2,690,128 | 1,597,094 |
| 0.00% | 0.00% | -0.04% |
| -0.11% | 0.00% | -0.14% |
| -1.51% | -0.39% | -1.55% |
| -0.74% | -1.54% | -0.25% |
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| Value Score |
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| Growth Score |
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| Momentum Score |
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| VGM Score |
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