Chipotle Mexican Grill, Inc. (CMG) stock desperately needs a tailwind. Shares are down 30% in the past year, as fallout from the burrito chain’s string of food safety crises hit foot traffic hard.
After a horrendous same-store sales decline of 14.6% in the fourth quarter, things got even worse. Chipotle reported a 36.4% SSS slump in January and a 26.1% slip in February.
It’s no secret: CMG stock owners can expect an ugly first quarter when earnings for the fast-casual chain comes out Tuesday afternoon.
The big question for Chipotle stock isn’t what Q1 earnings hold, but what sort of guidance Chipotle is able to give about its turnaround efforts going forward.
Chipotle’s Quarter by the Numbers
Here, in all their glory, are the numbers analysts expect from Chipotle come Tuesday: Wall Street thinks revenue will plunge 20.2% to $868.52 million, while earnings crater from $3.88 per share to a loss of 94 cents per share.
Management has already said that it expects to post its first negative per-share earnings as a publicly traded company, and that it could lose as much as a dollar a share as it seeks to stem the net outflow of customers with heavy promotional activity, advertising and giveaways.
Local search and discovery app Foursquare released data a few weeks ago that showed horrendous SSS figures continuing into March. It predicted that Chipotle SSS traffic will decline 30% in Q1.
That said, there was a silver lining for CMG stock in the negative numbers: Foot traffic is consistently down less than same-store sales, which may imply SSS has room to improve when customers run out of their “Free Burrito” coupons.
Looking ahead to the second quarter, I can’t help but think Chipotle stock analysts might be just a little too optimistic. They expect revenue to fall just 7.5% (after a 20% first-quarter slowdown), and for the company to swing to the black, making $1.60 per share.
I highly doubt the public will be so forgiving. After all, Foursquare data shows foot traffic down 22.1% and SSS down 28% as recently as the fourth week of March.
Sure, if management decides to keep blowing money on Chipotle stock buybacks, engineering its way to an EPS of $1.60 becomes much easier, but I’m not at all convinced that’s the right way for them to spend money here.
After all, let’s just remember for a minute that the core reason these E. coli, salmonella and norovirus outbreaks occurred has still not been discovered.
If I’m a Chipotle stock owner, that gives me no confidence at all that the food safety issues have been permanently resolved. The same goes for the consumer.
The Foursquare data earlier this month also showed Chipotle’s old customers flocking to McDonald’s Corporation (MCD), Starbucks Corporation (SBUX) and Whole Foods Market, Inc. (WFM), which now each have the opportunity to retain new customers.
At a price-earnings ratio of 29 and a forward P/E of 33, Chipotle stock is way too expensive for posing as much risk as it does.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
