Chipotle Suffered A 'Painfully Slow' Recovery

Chipotle Mexican Grill, Inc. CMG has announced its 1Q16 results generally in-line with its pre-announcement.

Credit Suisse’s Jason West maintains an Outperform rating on the company, while lowering the price target from $550 to $500.

1Q16 Miss

West mentioned that the EPS for 1Q missed the estimates and the consensus, as did the same-store sales. The decline in traffic was also higher than estimated.

Restaurant margin came in below the estimate, with line-item deleverage generally in line with the estimate.

Related Link: Be Careful With Chipotle Stock Before (And After) Earnings

Outlook

West pointed out that the April same-store sales were running at a -26 percent, excluding the Easter benefit, and stated, “This run-rate is moderately below expectations and suggests our prior 2Q SSS forecast and consensus are likely too high and need to come down.”

The April run rate is also marginally worse than that seen in late March, driven by tougher comps and weather.

According to the Credit Suisse report, “CMG customers are gradually coming back, but this process is taking longer than expected, which is extending the pain on margins/earnings.”

Although no guidance was provided for the 2Q EPS, management does not expect another quarter of loss. Chipotle Mexican Grill intends to continue to invest in incremental couponing and marketing initiatives to drive traffic going forward.

“Overall, CMG continues to take dramatic steps to improve sales at the expense of the core business model, with zero effort to manage the P&L against weak sales,” West said.

The EPS estimates for 2016 and 2017 have been lowered.