Chipotle Mexican Grill (CMG) reports first-quarter earnings Thursday before the bell. CMG stock has been on fire the past year, up 56% since this time last April, putting it well ahead of other restaurant stocks.
CMG stock has performed so well, there is speculation that a bubble exists for Chipotle stock and a select group of eight other companies.
I personally don’t believe a bubble exists. I think investors are just willing to pay more for quality. While Chipotle is certainly no bargain at the moment, I’m confident that three things in its Q1 report will move CMG stock higher.
But if these things fall short of expectations, you can bet on a correction.
Q1 Chipotle Earnings Preview
Analysts expect CMG to grow earnings per share by 21% to $2.85. That’s expected to come on a 20% sales hike to $873 million. In its Q4 2013 earnings release, CMG indicated that it will open as many as 195 restaurants in 2014. In Q1 2013, it opened 32 restaurants; I’d expect approximately the same amount in Q1 2014.
As for comparable restaurant sales, it expects them to grow in the low- to mid-single-digits, excluding any menu price increases in 2014. Last year’s first quarter saw 1% comps from an outlook of flat to low-single-digit comps in 2013.
CMG Stock Mover #1
CMG delivered 5.6% comps in 2013, which was well ahead of its outlook for the year. After a 1% increase in Q1 2013, it went on to book quarterly increases of 5.5%, 6.2% and 9.3%. It expects to generate more business this year than last — low- to mid-single-digits versus flat to low-single digits — suggesting that investors should be looking for Q1 2014 comps of 2% or more. Anything below 2% should cause investors to pause, while anything above 4% is a sign business is booming and should move CMG stock higher. Anything in between is business as usual.
CMG Stock Mover #2
Chipotle revealed in its Q4 conference call that food costs will continue to rise in 2014 due to drought conditions over the past two years. Particularly affected are avocado and beef prices. For a while in early March, America was freaking out that guacamole was going to disappear from Chipotle’s menu. While that’s not going to happen, it did indicate that CMG would consider reducing its purchases until avocado costs dropped to historical norms.
But that wasn’t the only thing happening with food costs…