Earnings Preview: Chipotle Mexican Grill, Inc. (CMG)

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Chipotle Mexican Grill, Inc. (NYSE:CMG) is expected to report earnings after the bell on Tuesday.

Chipotle Mexican Grill (NYSE: CMG)The fast-casual burrito maker has been reporting historically stellar results, topping analyst EPS expectations three quarters in a row and growing its revenues by 50% over the last few years — leading CMG up 37% in the past year.

However, even though the February report covering year-end 2014 CMG financials exceeded analysts EPS expectations by 4 cents per share for the quarter, the stock took a hit. CMG stock dropped 6% after falling short on expected revenues and comparable restaurant sales.

What exactly are analysts expecting with CMG prior to Tuesday’s earnings call? And what factors will make the stock jump or fall?

I think the restaurant’s upcoming financials will not match CMG’s past stellar results, even though it remains a great company. This may prompt many shareholders to drop this stock off the portfolio, presenting others an opportunity to buy CMG stock at a discount.

Chipotle Earnings Preview: Things to Think About

Analysts expect CMG’s earnings to post a Q1 2015 revenue of $1.1 billion and EPS of $3.62. The restaurant was already hinting at low to mid-single digit rises in same-store sales, with the highest sales activities in the first quarter and a slowdown in the later quarters.

Those results will sound disappointing compared to 16.8% same-store sales growth last year.

Bad winter weather in Q1 hit customer traffic in all types of restaurants across the board and resulted in a decline in sales. CMG stock is not immune to whims of Mother Nature, so expect that to weigh on results, too.

Furthermore, Chipotle is not ready to charge its customers more in the face of slowing foot traffic. CMG has opted not to raise its menu prices in the near term even though food costs have continued to rise.

Additionally, the restaurant this quarter refused to sell pork that did not meet its animal standard welfare protocol, impacting Carnitas supply to one-third of it stores. This move resonated with CMG’s customers, but it also resulted in a $2 million charge.

Even with slowing same-store sales, CMG is still looking to expand. After adding 192 stores in 2014 to bring its total up to 1,783 CMG stores, the burrito maker plans to add another 190-205 stores in 2015. The continued outlook to increase store locations is promising for CMG stock, even if same-store sales are slowing.

While slow same store growth is a concern, increasing its store count is the way CMG can grow. Chipotle is really a “victim” of its own success. CMG stores operate at high standard, making it harder to grow without adding locations. The average sales volume per CMG store is nearly $2.5 million per year — even new locations manage to bring in $1.7 million to $1.8 million.

What does it all mean?

With this relatively modest outlook, don’t be surprised if there is a big selloff after Chipotle earnings, based on unfavorable year-over-year comparisons. CMG stock might go at a discount right after the Nervous Nellies dump the stock claiming, “It’s good, but it’s not that good.”

But getting a quality stock at a great company at a discount is an opportunity all investors strive seek. Keep an eye out for CMG stock after the Chipotle earnings call.

As of this writing. Johnny Chen did not hold any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/cmg-chipotle-stock-chipotle-earnings/.

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