Chipotle Sentiment 'Choppy But Recovering,' Credit Suisse Says

Chipotle Mexican Grill, Inc. CMG is scheduled to report its 1Q results on April 26. Credit Suisse’s Jason West maintained an Outperform rating for the company, with a price target of $550. The analyst expects the focus to be on 2Q, since Chipotle had already preannounced its 1Q EPS.

Focus On 2Q

Analyst Jason West estimated an 18 percent decline in 2Q SSS, with restaurant-level margin at 17.4 percent. This marks a steep sequential improvement, with 1Q forecasts at SSS down 29 percent and restaurant-level margin at 7.

West expects April SSS to decline 20 percent, due to the Easter shift and “improving consumer sentiment.” This marks an acceleration from the March SSS forecast of down 25 percent. “SSS need to improve to approx. -17% in May/June for CMG to stay on track with our outlook,” the analyst wrote.

Commenting on how Chipotle would achieve mid-teens restaurant-level margin in 2Q, West said that margin is likely to be boosted by:

• Less negative SSS
• Less marketing/promo deleverage
• Lower legal and food waste

Online Sentiment

West mentioned that while online sentiment was choppy, it seemed to be recovering.

“Trends in online sentiment remain volatile but have exhibited an upward trend since bottoming in January…April to-date, we've seen mixed signals from Google Trends but believe the underlying trajectory points towards recovery. Encouragingly, search interest around food safety issues related to CMG have dropped sharply,” the Credit Suisse report noted.