Chipotle's Pace Of Improvement Is 'Still Shallow'

Although Chipotle Mexican Grill, Inc. CMG seems to be making a recover, the pace is below prior expectations, Baird’s David E. Tarantino mentioned in a report. He maintained a Neutral rating on the company, with a price target of $435, saying that a more constructive stance would require a better near-term entry point.

Chipotle reported its quarterly EPS at $0.87, short of the Baird estimate and consensus. Revenue declined by 16.6 percent, while comps were down 23.6 percent.

Gradual Improvement, Pace Disappointing

Comps improved steadily during Q2, increasing from a calendar-adjusted decline of 26 percent in April to a decline of 24-25 percent in May and down roughly 23 percent in June, analyst David Tarantino noted.

So far in July, comps have tracked down 20-21 percent, with early benefits from the launch of Chiptopia Summer Rewards. Tarantino added, “While the progress is reassuring in some respects, we remain somewhat concerned about the fairly shallow pace of the recovery.” He explained that the pace of recovery was below prior expectations.

The EPS estimates for 2016 and 2017 have been reduced from $4.50 to $3.35 and from $10.50 to $9.25, respectively. “We remain optimistic that the business ultimately can recover from prior food safety incidents, but given the ongoing downward bias to estimates, we prefer to wait for a better near-term entry point on the stock before taking a more constructive stance with our rating,” the analyst stated.

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