Chipotle's Q3 Misses Expectations On All Metrics

Jefferies maintains its Underperform rating on Chipotle Mexican Grill, Inc. CMG as the company’s third-quarter numbers missed consensus across all metrics.

Chipotle’ operating EPS of $0.56 significantly below Jefferies/consensus view of $1.58. The company’s third quarter same store sales (SSS) drop of 21.9 percent with traffic down 15 percent also came in below expectations.

The results show that the company’s strategy of promotions and food giveaways is not working and sales recovery could take longer than expected. As such, the company is unveiling significant changes to drive better 2017.

Among others, Chipotle plans current TV ad tests in three markets (with potential to go national in Spring '17), improvements in online ordering and new menu additions with dessert tests.

“We suspect some of these may be drivers in '17 but will take time and could result in some incremental costs to support, not fully factored in,” analyst Andy Barish wrote in a note.

Looking ahead, Barish said the fourth quarter start is -20 percent “with easy food incident laps to come and traffic in negative mid-teens, certainly slower than expected.”

Consequently, the analyst cut his fourth quarter SSS estimate to a 5 percent drop from 0 percent. The company expects SSS declines in the low-single-digits for the fourth quarter.

For 2017, Chipotle sees SSS increases in the high-single-digits and projects $10 EPS.

“Guide points to high s-d SSS and $10 EPS, but we can't get there,” Barish continued.

As such, Barish cut his '17 EPS estimate to $8.01 from $9.42 and trimmed price target to $300 from $330.

Chipotle shares closed Tuesday’s trading at $405.67. In the pre-market trading Wednesday, the stock fell 3.25 percent to $392.50, and at last check, Chipotle was down 7 percent at $377.29.