Chipotle Stock Falls Despite Strong Earnings

Chipotle Mexican Grill (CMG) beat third-quarter earnings expectations Thursday, even as rising food and labor costs eat into restaurant profits industrywide. Chipotle stock rose in the regular session, but gave up some gains after-hours.




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Higher operating costs have cut into profits at other restaurants recently, including Brinker International (EAT), who missed first-quarter earnings views earlier this week. Brinker reported EPS of 34 cents, 50% below views for 68 cents, even as sales of $876.4 million were basically in line with estimates.

Chipotle Earnings

Estimates: FactSet analysts saw Chipotle earnings soaring 68% vs. a year earlier to $6.32 per share. Sales were expected to rise 21% to $1.94 billion. Same-store sales were seen rising 14%.

Results: Chipotle earnings per share of $7.18, a 155% increase from the year-ago period. Excluding one-time items, adjusted diluted earnings per share came in at $7.02, an 87% increase from $3.76.

Total revenue rose 22% to $1.95 billion. Comparable restaurant sales increased 15%. Digital sales grew 8.6% and accounted for 42.8% of sales. Operating margin was 12.3%, an increase from 6.7%.

Food and beverage costs rose 14% vs. a year ago. Labor costs spiked 24%.

Chipotle opened 41 new restaurants, including 2 relocations.

Outlook: Management forecast Q4 comparable-sales growth in the low to mid double-digits range.

Wedbush analyst Nick Setyan said in a restaurant industry note Oct. 15 that digital sales, urban business area recovery, menu innovation and price increases among the key drivers of same-store growth in the near term and beyond.

“We believe CMG is among the best positioned restaurants in the industry with respect to pricing power,” he wrote. 

He says price increases could offset food cost inflation in Q4 and through the first half of 2022.

Chipotle Stock

Shares closed up 1.3% to 1,843.83on the stock market today. But it gave back those gains in extended trade, falling just over 1%. Chipotle stock’s relative strength line is trending lower, after reaching all-time highs in July, according to MarketSmith.

The Newport Beach, Calif.-based company posted blockbuster earnings last quarter, albeit compared to the year-before period that coincided with the height of pandemic closures.

Shares gapped up nearly 12% on July 21 after Q2 results, and continuing rising to 1,958.55 intraday on Sept. 23. CMG stock has since retreated, falling below its 50-day line in recent weeks.

Chipotle is working on a new consolidation, but it’s still too short to be a proper base. If CMG stock can reclaim its 50-day line following earnings, it could offer an early entry.

Its EPS Rating is 98 out of a possible 99, while its RS Rating is 75. With a Composite Rating of 98, Chipotle stock is ranked No. 1 in IBD’s Retail-Restaurants group.

Among other restaurant stocks, Brinker stock rose o.2%, after tumbling 9.7% on Wednesday, and Darden Restaurants (DRI) gained 1.7%, but lost 2% in after-hours trading. And Cheesecake Factory (CAKE) was down 0.5% Thursday.

BJ’s Restaurants (BJRI) was down 0.7%, and lost another 1.5% after the close Thursday, adding to a 6% slide Wednesday. It reported Q3 earnings late Thursday that did not meet Wall Street expectations.

BJ’s had a per-share loss of 9 cents for the quarter. Adjusted for pretax gains, it had a loss of 13 cents a share. It posted revenue of $282 million for the period, also below views.

Chipotle’s Digital Push

Chipotle’s focus on digital sales is fueling profits. Its Chiptolanes, the brand’s drive-thru digital order pickup lane, has a dedicated team and kitchen devoted to digital orders.

In the Q2 conference call, management said restaurants with Chipotlanes continued to drive about 15% higher overall digital sales over the trailing 12-month period vs. locations without Chipotlanes.

As of June 30, there were 244 Chipotlanes. The company plans to include a Chipotlane in more than 70% of the 200 new restaurants planned for 2021.

“A little more than half of the digital sales were from order ahead transactions as guests increasingly appreciate both the convenience and value offered by this channel, as well as the added convenience of more Chipotlanes,” the company said in a statement following earnings.

Additionally, Chipotle has been updating menu options to attract new customers and generate more sales from existing customers. Last month, it launched Smoked Brisket at its U.S. and Canada restaurants for a limited time. And recently, it tested plant-based Chorizo in select markets.

The strategy appears to be working, especially among younger customers. Piper Sandler’s Semiannual “Taking Stock With Teens” survey of 10,000 U.S. teenagers ranks Chipotle as the No. 3 restaurant brand, behind Chick-fil-A and Starbucks (SBX).

Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.

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