Chipotle Q1 Earnings Beat, Revenues Miss; Shares Fall - Analyst Blog
Chipotle Mexican Grill, Inc. CMG posted mixed first quarter 2015 results. While first quarter earnings beat the Zacks Consensus Estimate, revenues missed the same. Share price of this fast-casual restaurant chain fell 5.4% in afterhours trading, possibly due to the sales miss and concerns regarding the shortage of pork supply.
Adjusted earnings of $3.88 per share soared 47% year over year as better margins made up for softer revenues. Also, earnings beat the Zacks Consensus Estimate of $3.61 by 7.5%.
Chipotle Mexican Grill Inc. - Earnings Surprise | FindTheCompany
Revenues grew 20.4% year over year to $1.09 billion due to higher comps and new restaurant openings. However, revenues lagged the Zacks Consensus Estimate of $1.10 billion by 1.2%. Pork supply shortage has impacted the availability of one of its popular items, carnitas. In Jan 2015, the company suspended the sale of pork at one-third of its restaurants in the U.S. as one of its suppliers failed to comply with the animal welfare standards set by the company. (Read: Chipotle Halts Pork Sales after Quality Issues with Supplier).
Behind the Headline Numbers
Comps grew 10.4% due to menu price increases. However, it compared unfavorably with the year-ago quarter comps of 13.4% as well as prior quarter comps growth of 16.1% due to inclement weather and lower pork supplies that caused scarcity of carnitas in some of its restaurants. As per Consensus Metrix, analysts had expected comps to grow 11.8%.
At its first quarter earnings conference call, the company stated that it has found a new pork supplier. It expects additional pork to return to its restaurants in the third quarter with a full return of carnitas in the fourth quarter of the year.
Food costs, as a percentage of revenues, fell 60 basis points (bps) to 33.9%, as favorable dairy costs made up for the increased beef and tortilla costs. General and administrative expenses were 5.8% of revenues, down 160 bps from the prior year, primarily due lower non-cash stock based compensation expense.
Restaurant level operating margin was 27.5%, up 160 bps year over year due to favorable sales leverage.
Comps Guidance Update
The company maintained its comps guidance and expects it to grow in the low to mid-single digit range in 2015, much lower than 16.8% comps growth witnessed in 2014.
In the second quarter, the company expects comps in the low-to-mid single digit range, which takes into account 200 bps negative impact from pork shortage.
Food Costs to Lead to Menu Price Increase?
The company expects beef prices to remain high in 2015 and 2016 due to supply constraints. Also, prices of avocado are expected to remain slightly high in the second and third quarters of the year. Given higher beef prices, the company intends to consider price increases for the Steak and Barbacoa menu later in 2015, probably in the third quarter. The company targets an average increase in the range of 4% to 6%.
Chipotle carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked stocks in the same industry include Cracker Barrel Old Country Store, Inc. CBRL, Darden Restaurants, Inc. DRI and Ruby Tuesday, Inc. RT. All these stocks sport a Zacks Rank #1 (Strong Buy).
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