Why Chipotle Shares Dipped After-Hours Despite Earnings Beat

Restaurant chain Chipotle Mexican Grill Inc CMG beat earnings expectations in the third quarter ended September 2020 on Wednesday. The company reported comparable sales growth of 8.3%, and digital sales growth of 202.5% year-over-year.

Key Highlights for Q3 2020: At $1.6 billion, Chipotle’s revenues rose 14.1% YoY, marginally beating consensus by $10 million. Adjusted diluted earnings per share was $3.76, falling 1.6% YoY, but 46 cents better than consensus of $3.40.

Between August to September, the restaurant had opened 44 new outlets and closed 3 of its units. Around 10 outlets inside malls and shopping centers remain temporarily closed due to the lockdown restrictions. The chain currently has a total of 2,710 restaurants.

Chipotle maintains a liquidity position with $1.1 billion in cash and cash equivalents, and an unused $600 million credit facility, and no debts.

The restaurant-level operating margin for the quarter was 19.5%, down by 130 basis points YoY.

The 200% growth in digital sales came on the back of higher operating costs, as payments to delivery partners exceeded customer collections, affecting margins and other financial metrics.

GAAP diluted EPS declined 18.7% YoY to $2.82, compared to $3.47 in Q3 2019. The EPS figures include a $0.94 after-tax adjustment for expenses in connection with certain legal proceedings, asset impairment charges, restaurant shutdown costs, corporate restructuring expenses, etc.

Outlook for Q4 2020: The management declined to provide an outlook for comparable-store sales in 2020 and 2021, due to the uncertainties from the pandemic.

Under normal circumstances, Chipotle estimates 200 new restaurant openings in 2021.

Price Action: CMG shares plunged 3.40% to $1,315.25 in the after-hours session Wednesday.