Chipotle Mexican Grill Earnings Preview: Solid Quarter Expected, But Watch Same Store Sales (CMG)
Chipotle Mexican Grill (NYSE: CMG), which was the #46 most shorted S&P 500 component at the last settlement date, is scheduled to report its second-quarter 2013 results Thursday, July 18, after the markets close.
Though solid results are expected, investors will be keeping an eye on the same-stores sales. As if faces increasing competition from start-up fast-casual restaurants, the company has recently included new offerings, has not raised prices in a year and began a new advertising campaign in the second quarter.
Analysts on average predict that Chipotle will report that revenue for the second quarter rose more than 16 percent year-over-year to $802.70 million. Earnings of $2.81 per share are also in the consensus forecast. That would be up from a reported profit of $2.56 per share in the comparable period of last year and from $2.45 in the fourth quarter.
In the past 60 days, that consensus earnings per share (EPS) estimate has slipped by a penny. And also note that Chipotle earnings fell short of consensus estimates in half of the past six quarters. The first-quarter EPS exceeded expectations by 15 percent, though.
Chipotle attributed first-quarter results in part to increased traffic and the opening of 48 new stores. Higher commodity costs in chicken and in salsa ingredients were responsible in part for a decrease in the operating margin. The share price jumped more than 11 percent following the first-quarter report.
See also: Chipotle Jumps on Q1 Earnings Report
Looking ahead to the current quarter, the forecast thus far calls for EPS up about 17 percent year-over-year to $2.74. But that EPS estimate also has ticked down by a penny in the past 60 days. And revenue for the quarter is expected to be about 16 percent higher to $ 813.43 million. Full-year revenue is so far expected to be up by about 16 percent as well.
Chipotle Mexican Grill operates more than 1,400 fast-casual restaurants in the United States, Canada, the United Kingdom and France that feature organic ingredients and more naturally raised meat. The company also operates two ShopHouse Southeast Asian Kitchen restaurants.
The company is as S&P 500 component, was founded in 1993 and its headquarters are in Denver. The company has a market capitalization about $11.7 billion. M. Steven Ells is the founder and chairman. He and Montgomery F. Moran are co-chief executives.
Competitors include Buffalo Wild Wings (NASDAQ: BWLD), Panera Bread (NASDAQ: PNRA) and Yum! Brands (NYSE: YUM), parent of Taco Bell. Buffalo Wild Wings and Panera are expected to report solid revenue and earnings growth when they report second-quarter results later this month. Analysts expect Yum! Brands to post a year-over-year decline in EPS and flat revenue when it next reports, as if faces challenges in China, primarily with its KFC brand.
During the three months that ended in June, Chipotle said it plans to serve more than 15 million pounds of locally grown produce in 2013, and it signed leases for additional ShopHouse Southeast Asian Kitchen locations. Also, a prominent analyst continued to recommend shorting Chipotle during the quarter.
Chipotle has a long-term EPS growth forecast of more than 20 percent, but its price-to-earnings (P/E) ratio is greater than the industry average. The operating margin is greater than the industry average too. The return on equity is about 23 percent and the return on investment is about 22 percent.
The number of Chipotle shares sold short, as of the June 28 settlement date, fell to its lowest level in nearly a year and represents about nine percent of the float. The days to cover is more than seven.
The consensus recommendation of the 27 analysts surveyed by Thomson/First Call who follow the stock is to hold shares. Six of them rate the stock at Strong Buy, while just one rates it at Sell. But the analysts' mean price target is less than the current share price, meaning they see no upside potential at this time. But price targets could be raised if Chipotle offers an upside surprise or rosy guidance.
The share price is more than 27 percent higher than at the beginning of the year, and reached a nine-month high last week. It is above the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed Panera and Yum! Brands, as well as the broader markets.
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