Chipotle Mexican Grill: Turning the Corner?

April 18, 2017

Chipotle Mexican Grill (CMG) has been down so long it’s hard to believe that its stock might ever be as tasty as its burritos again. Yet, some observers contend that signs are emerging that Chipotle’s shares could be setting up for a big move higher.

Why the positivity? Wells Fargo’s Jeff Farmer and team contend that Chipotle is posed to offer better guidance when it reports earnings on April 25:

Chipotle Stock Has a Lot to Prove on Tuesday

Apr 23, 2017

Chipotle Mexican Grill is in the process of trying to dig its way out of a pretty big hole, and in a couple of days, we'll find out how much ground the burrito roller has left to make up. There will be improvement in the first-quarter results that Chipotle will be posting after Tuesday's market close. The only real mystery in the fresh financials will be the degree of the growth.

Analysts are holding out for $1.05 billion in revenue through the first three months of the year, 26% ahead of where things were a year earlier. The heady gain would be Chipotle's strongest year-over-year quarterly growth in more than two years, but it's also important to remember where the chain was a year earlier. Revenue plunged 23% as new restaurant openings weren't enough to offset a cruel 29.7% plunge in comparable-restaurant sales.

Wall Street pros see new restaurant openings and a roughly 15% uptick in comps fueling the 26% top-line growth that they are targeting. Analysts also see a profit of $1.27 a share for the quarter, reversing an $0.88-a-share deficit a year ago that was the chain's first and, fortunately, only quarterly loss as a public company.

Guac you like a hurricane

If optimists need a reality check, they may want to take a look at the two-year growth at Chipotle. The fast-casual eatery clocked in with a profit of $3.95 a share on $1.09 billion in revenue during the first quarter of 2015. Revenue was higher despite Chipotle serving its signature burritos and bowls in a lot fewer locations back then. Chipotle had just 1,783 locations at the start of 2015, rising to 2,250 units two years later.

Margins have also been smacked around given the lower per-store volumes and rising labor and occupancy costs. It's going to be hard to applaud a profit of $1.27 a share when it's less than a third of what it was two years earlier.

Obviously, it's great to see Chipotle moving in the right direction again. Chipotle's guidance back in early February for all of 2017 calls for comps in the high single digits. It expects to open another 195 to 210 new locations. Expansion may seem to be doing little more than padding revenue growth at the expense of escalating its operating costs, but it will be a big factor in bottom-line growth if Chipotle ever gets back to its peak margin performance.

It has taken a lot longer for Chipotle to bounce back from the retracting customer base following a few incidents of food-borne illnesses in late 2015. There hasn't been an incident reported in more than a year, but some former customers either don't trust Chipotle or they've moved on to shinier concepts.

The Mexican food chain posted revenue of $1.07 billion in the period, also topping Street forecasts. Ten analysts surveyed by Zacks expected $1.05 billion.

Chipotle Mexican Grill, Inc. Announces First Quarter 2017 Results

DENVER--(BUSINESS WIRE)--Apr. 25, 2017-- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its first quarter ended March 31, 2017.

Overview for the first quarter of 2017 as compared to the first quarter of 2016:

• Revenue increased 28.1% to $1.07 billion
• Comparable restaurant sales increased 17.8% (including 0.6% from recognized revenue previously deferred related to Chiptopia)
• Restaurant level operating margin increased to 17.7% from 6.8%
• Net income was $46.1 million, improved from a net loss of $26.4 million
• Diluted earnings per share was $1.60, improved from a diluted net loss per share of $0.88
• Opened 57 new restaurants

“2017 is off to a strong start, as our restaurant managers and teams are energized by our renewed focus on the customer,” said Steve Ells, Founder, Chairman and CEO of Chipotle. “By simplifying the focus in our restaurants to only those elements that lead to a great guest experience, our operations have improved every single month, which gives us confidence that we are on our way to achieve our mission to ensure that great food made with whole unprocessed ingredients is accessible to everyone.”

First quarter 2017 results

Revenue for the quarter was $1.07 billion, up 28.1% from the first quarter of 2016. The increase in revenue was driven by comparable restaurant sales increases and to a lesser extent by new restaurant openings. Comparable restaurant sales increased due to improved customer traffic, reduced promotional activity, and increased average check. Comparable restaurant sales increased 17.8%, which included a benefit of 0.6% due to previously deferred revenue related to Chiptopia recognized during the quarter. We opened 57 new restaurants during the quarter and closed 15 ShopHouse Southeast Asian Kitchen restaurants and one Chipotle restaurant. Our total restaurant count as of the end of the quarter was 2,291.

Food costs were 33.8% of revenue, a decrease of 150 basis points compared to the first quarter of 2016. The decrease was primarily driven by lower food waste and testing costs, and bringing the preparation of lettuce and bell peppers back to our restaurants. This decrease was partially offset by higher avocado prices.

Restaurant level operating margin was 17.7% in the quarter, an increase from 6.8% in the first quarter of 2016. The increase was primarily driven by sales leverage, lower marketing and promotional spend, efficiencies in labor, and lower food costs. The restaurant level operating margin also benefited by 0.15% from sales leverage related to recognizing revenue previously deferred from Chiptopia, slightly offset by free catering discounts for Chiptopia.

General and administrative expenses were 6.5% of revenue for the first quarter of 2017, a decrease of 90 basis points from the first quarter of 2016. In dollar terms, general and administrative expenses increased $7.4 million compared to the first quarter of 2016 due to increased non-cash stock based compensation and bonus expense, partially offset by lower legal and travel costs. Excluding stock based compensation, general and administrative expenses during the quarter were flat in dollar terms compared to last year. Stock compensation expense was higher during the first quarter of 2017 because the first quarter of 2016 included a reduction in expense for performance awards that were no longer expected to vest against performance criteria. Without this reduction, stock compensation expense was consistent in both years.

Net income for the first quarter of 2017 was $46.1 million, or $1.60 per diluted share, compared to net loss of $26.4 million, or a loss of $0.88 per diluted share, in the first quarter of 2016.

Shares of Chipotle rose more than 6 percent during extended-trading after an earnings and same-store sales beat for its first quarter, but it gave back much of those gains after the company revealed "unauthorized activity on a network that supports payment processing for purchases made in our restaurants."

Why Chipotle Stock Is Tanking (CMG)

June 20, 2017

Investors betting on a quick turnaround at Chipotle were dealt a bitter blow on Monday after the burrito chain confirmed that efforts to repair its tarnished reputation and steal back market share from peers following a series of damaging food-borne illness outbreaks in late 2015 will continue to weigh on the company’s bottom line.

In a Securities and Exchange Commission filing, Chipotle confirmed that marketing and promotion expenses will likely rise between 20 to 30 basis points, representing 3.6 percent to 3.7 percent of full-year sales. This revelation, together with news that food costs are expected to remain at 34.2 percent of total revenues and that same-store sales growth predictions are unchanged, was enough to send the company’s stock tumbling by as much as 3 percent to $445 a share in after-hours trading.

Chipotle's expensive drive to convince customers to return to its scandal-ridden restaurants was initially well received by investors. Promotions, including a nationwide ad campaign highlighting the company’s vow to provide healthier cuisine than rival brands, free food offers and the addition of desserts to its menu, helped to convince many investors that the troubled food chain was making all the right moves to salvage its damaged reputation.

Instinet lowers targets on Chipotle

Jun. 20, 2017

Instinet lowers its price target on Neutral-rated Chipotle (NYSE:CMG) to $480 from $510. The PT works out to 54.9X the estimate for 2017 EPS and 37.6X the estimate for 2018 EPS.

The firm thinks Chipotle will need to make continued investments to drive top line growth and sees margin pressure continuing to linger.

Chipotle slumps after reaffirmed guidance fails to satisfy

Jun. 20, 2017

Chipotle trades lower as more analysts take shots at the restaurant stock after the company only reaffirmed its full-year guidance in a SEC filing.

Same-store sales are still seen increasing at a high single-digit rate, but that pace misses the consensus analyst estimate for a 10.3% gain.

Chipotle expects food costs to be approximately 34.2% of sales and marketing/promotion costs to be up approximately 20 to 30 basis points on a year-over-year comparison. Operating costs as a percentage of sales are anticipated to be slightly higher than Q1.

SunTrust and Instinet are both out this morning with cautionary comments on Chipotle.

Does Chipotle's Updated Guidance Change Anything?

June 20, 2017

Chipotle Mexican Grill, Inc. released a regulatory 8-k filing after Monday's market close to "reaffirm and clarify" certain financial and operating metrics.

Chipotle said it still expects food costs for the second quarter to be approximately 34.2 percent of sales. Moreover, marketing and promotional spend is now expected to be up 20–30 basis points versus the first quarter's 3.6 percent to 3.7 percent of sales.

As a result, operating costs as a percentage of sales for the second quarter to be "at or slightly higher" compared to the first quarter, the fast casual restaurant chain added.

Finally, full-year comparable restaurant sales are expected to increase by a high-single digit, and 195–210 new locations are expected to open.

Stephens' Will Slabaugh maintains an Underweight rating on Chipotle's stock with an unchanged $350 price target following Chipotle's update, which prompted a revised estimate to the downside.

Chipotle is now expected to earn $7.65 per share for the full fiscal year, Slabaugh stated in a research report. This compares to his prior estimate of $8.50 per share and the Street's consensus estimate of $8.46 per share.

Chipotle shuts Virginia store after reports of illnesses

July 18, 2017

NEW YORK (AP) — Chipotle says it temporarily shut down a restaurant in Virginia following reports of customers becoming ill.

The company says it shut down a location in Sterling, Virginia, on Monday after becoming aware of a "small number" of reported illnesses. It says it is working with health authorities to understand the cause, but the reported symptoms are consistent with norovirus. Chipotle plans to reopen the restaurant after a "complete sanitization."

The Denver-based company notes that norovirus does not come from its food supply and it is safe to eat at its restaurants.

Chipotle has been working to bounce back from a series of food scares that started with E. coli outbreak in the fall of 2015 and included a norovirus case in Boston. Its shares fell more than 5 percent Tuesday.

Chipotle's stock rallies after upgrade on queso optimism, valuation

July 18, 2017 8:51 a.m. ET

Shares of Chipotle Mexican Grill Inc. rallied 1.1% in premarket trade Tuesday, after the fast casual Mexican restaurant chain was upgraded at Maxim Group, which cited optimism over the introduction of queso and valuation.

Analyst Stephen Anderson raised his rating to buy from hold and raised his stock price target to $470, which is 20% above Monday's closing price of $392.00, from $440. Anderson has now swung to bullish from bearish (sell) on Chipotle in seven months.

The upgrade comes a week before Chipotle reports second-quarter results. "We contend the introduction of queso -- a Mexican cheese dip -- which is now in test, will be an important catalyst for [Chipotle] in 2018," Anderson wrote in a note to clients. "We now argue the recent pullback in [Chipotle] shares, along with the potential for upside from queso, provide an opportunity for investors to participate in [Chipotle's] recovery."

Chipotle Drops After Outbreak Forces It to Close Restaurant

July 18, 2017

• Food-safety head says symptoms are consistent with norovirus
• Incident renews concerns after series of outbreaks in 2015

Chipotle Mexican Grill Inc. suffered its worst stock decline in seven months after a suspected norovirus outbreak at one of its restaurants threatened to renew the company’s food-safety crisis.

The burrito chain closed a location in Sterling, Virginia, on Monday after a “small number” of illnesses were reported, according to Jim Marsden, Chipotle’s executive director of food safety. The company is working with health authorities to determine the cause of the outbreak, he said.

“The reported symptoms are consistent with norovirus,” Marsden said in an emailed statement. “Norovirus does not come from our food supply, and it is safe to eat at Chipotle. We plan to reopen the restaurant today.”

The move follows a series of foodborne-illness outbreaks in 2015 that sent Chipotle’s sales and stock price plunging. Though norovirus cases aren’t rare -- about 20 million Americans are sickened each year -- Chipotle’s past problems have put health incidents at the chain under intense scrutiny.

The stock fell as much as 7.6 percent to $362.40 on Tuesday, marking the biggest intraday drop since December. It had been up 3.9 percent this year through Monday’s close.

As it was trying to restore its image in 2016, Chipotle hired Marsden to oversee its food-safety efforts. The former professor in Kansas State University’s Animal Science and Industry Department has worked to revamp procedures at the Mexican-food chain.

The norovirus virus is typically spread from one person to another, according to the Centers for Disease Control and Prevention. But it can also be transmitted by eating contaminated food or water.

“We take every report of illness seriously,” Marsden said on Tuesday. “In accordance with our established protocols, our team is working to ensure the safety of our customers and employees, including voluntarily closing the restaurant yesterday to conduct a complete sanitation.”

That latest incident could spur investors to call for a chief operating officer -- someone who could better monitor the company’s more than 2,000 restaurants -- according to Mike Halen, an analyst at Bloomberg Intelligence. Chief Executive Officer Steve Ells previously had help from co-CEO Monty Moran, but that executive stepped down last year.