Chipotle's Q4 Has Some Bullish While Others Wanted More

Chipotle Mexican Grill, Inc. CMG reported fourth-quarter results highlighted by an EPS and same-store sales beat, driven by the limited-time carne asada option.

Chipotle CFO: 'Just Getting Started'

Chipotle CFO Jack Hartung was a guest on CNBC's "Mad Money" and told Jim Cramer the restaurant chain's momentum in loyalty is "just getting started." He said there are 8.5 million people who signed up for loyalty benefits and the company plans to make full use of it.

The executive said Chipotle hasn't "really monetized" its user base. The company plans on offering a personalized program where it can communicate on a "one-to-one basis."

Chipotle's Quarter Review

Chipotle's fourth quarter signals the chain's ongoing momentum remains in place, according to Credit Suisse analyst Lauren Silberman. Most notably, same-store sales grew 13.4% and accelerating for the eighth consecutive quarter despite facing tougher compares. The company also took advantage of 8% traffic growth and 5.4% average check growth to lift margins by 220 basis points to 19.2%.

"CMG's industry-leading and traffic-driven SSS demonstrates momentum across the business, with a multitude of sales drivers in early innings supporting our expectation for ongoing outperformance," Silberman wrote in a note.

Wedbush analyst Nick Setyan said multiple takeaways from Tuesday's report can serve as drivers for a high-single-digit same-store sales trajectory in 2020. For example, digital sales accounted for 19.6% of total sales in the fourth quarter and has room to move higher from delivery and loyalty benefits.

Chiptole's menu innovation, initiatives to improve throughput, and benefits from drive-thru have yet to fully materialize and could continue contributing to same-store sales growth through 2021.

Related Link: Here's What Drive-Thrus Mean For Chipotle Investors

Not Good Enough

Chipotle's same-store sales came in "toward the upper end" of investor expectations while restaurant-level margins lagged expectations, UBS analyst Dennis Geiger said. The EPS beat wasn't as large as many had hoped for, which is becoming a new trend of smaller EPS beats.

Management guided 2020 same-store sales to rise by a mid-single-digit, but Geiger said some investors were expecting a higher figure in the 7% to 8% range. The more bullish investors are also expecting 2020 EPS to come in at around $22 and around $30 in 2021.

Sustainability Moving Forward

Chipotle's same-store sales beat Cowen's street-high 12% estimate and management's mid-single-digit comp growth for 2020 looks to be conservative, analyst Andrew Charles said. The analyst expects "sustained strength" throughout the year to translate to 80 to 90 basis points of sequential acceleration per quarter.

Charles' revised his full-year 2020 same-store sales growth estimate from 6.6% to 7%, which is nearly a full percentage point above the current consensus estimate of 6.1%.

Similarly, KeyBanc analyst Eric Gonzalez believes Chipotle's momentum is sustainable. The analyst said Chipotle is "running better restaurants," including lower labor turnover, faster throughput, more consistent order accuracy, more relevant marketing, and digital investments.

"As Chipotle faces the high-class problem of difficult comparisons in 2020, we see reasons why the chain can continue to deliver among the industry's best top-line results," the analyst wrote in a note.

CMG Ratings And Price Targets

  • Credit Suisse maintains at Outperform, price target lifted from $930 to $1,010.
  • Wedbush maintains at Outperform, $980 price target.
  • UBS maintains at Neutral, price target lifted from $900 to $925.
  • Cowen maintains at Outperform, price target lifted from $975 to $1,000.
  • KeyBanc Capital Markets maintains at Overweight, $960 price target.

Shares of Chipotle Mexican Grill were trading lower by 2.6% at $861.28.

Photo credit: Chis Potter, Flickr

Posted In: Andrew CharlesCasual Fast FoodCowenCredit SuisseDennis GeigerEric GonzalezfoodJack HartungKeyBanc Capital MarketsLauren SilbermanNick SetyanUBSWedbushAnalyst ColorEarningsNewsPrice TargetRestaurantsAnalyst RatingsGeneral