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Chipotle Looks to Continue Hot Streak with Earnings Report Next Week

Christopher Vargas

Chipotle CMG hit a 52-week high on Thursday, adding to the already impressive year the company has put together. Shares of the company have been able to outperform its “big five” counterparts, which include McDonald’s MCD, Yum Brands YUM, Darden Restaurants DRI, and Domino’s Pizza DPZ. The burrito bowl making giant is currently up over 76.8% on the year, significantly outpacing the broader food and restaurant market. Chipotle is set to report its second quarter earnings on Tuesday, July 23rd after the closing bell. Let’s take a closer look at the company itself and what to expect from them this earnings season.

Overview

The company was founded in 1993 by Steve Ells who started with a single restaurant in Denver, Colorado. Chipotle is a company that has been able to make a thorough recovery from the bad publicity that came with food-borne illnesses being attributed to their food. Their stock took a hard tumble from the food poisoning scare, with shares dropping significantly in 2017. As a safety measure, Chipotle was forced to close several of its branches which hurt its business. Since the appointment of Brian Niccol to CEO in 2018, the company has been able to make a remarkable recovery and has been able to get back to reaching all-time highs.

Chipotle’s marketing strategy has shifted from a promotion-driven, decentralized approach in 2017, to a more central model designed to generate higher consumer awareness and attract guests. In 2018, Chipotle launched a loyalty program called Chipotle Rewards, which provides customers with the opportunity to earn bonus points and free food. The fast-casual Mexican chain has been taking aggressive measures to restore its economic model and regain consumer trust. Niccol’s expertise in restaurant operations, digital technologies, and branding significantly helped Chipotle to boost its bottom line in 2018.

An additional initiative Chipotle has been taking is strengthening its digital capabilities. The company is trying to make digital ordering more appealing to consumers as they try to venture over into the e-commerce realm. They are attempting to make digital ordering not only more appealing for consumers, but also more efficient for their restaurants in order to drive up digital sales and boost customer retention. Furthermore, CMG has redesigned and simplified its online ordering site, enabled online order customization, and collaborated with well-known third-party providers for delivery.

Q2 Outlook

In the first quarter of 2019, Chipotle was able to surpass our NFM Total Restaurants Estimate by 0.39% by having 2,504 operating outlets. The company’s revenue increased 13.9% year-over-year by bringing in $1.3 billion, and comparable restaurant sales increased by 9.9%. CMG’s digital sales grew 100.7% and accounted for 15.7% of total sales generated last quarter. The company was able to open 15 new restaurants but had to close two. Chipotle’s bottom line of $3.40 per share was an increase of 59.6% from the year ago quarter, exceeding our Consensus Estimate for an EPS surprise of 12.96%.

For Q2, year-over-year Consensus Estimates are currently calling for the company’s revenue to increase 10.84% to $1.4 billion, with a bottom-line surge of 28.92%. Chipotle has been able to consistently surpass our Consensus Estimates with an average EPS surprise of 11.99%. In addition, our NFM Estimates are projecting comparable restaurant sales to jump 8.07%. NFM Estimates are also forecasting for total restaurants to make a roughly 1% leap to 2,528. Furthermore, Our Zacks Expected Surprise Prediction is also calling for a 4.98% earnings surprise.

Takeaway

Chipotle is a company that has taken the industry by storm by amounting an unprecedented recovery since 2018. The company’s digital sales are going in the right direction, and it will be crucial for the company to continue making strides in the digital realm. E-commerce has taken a strong hold of the commercial markets, and if Chipotle wants to continue its success in the future, then they must learn to get with the times. Chipotle has been able to continually grow in not only sales but earnings as well. The company’s decision to make the switch to Brian Niccol as their CEO has given Chipotle a boost at just the right time; shares are up 104.7% over the last two years.

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