Earnings Review: Chipotle Mexican Grill, Inc. Q2 2017
- The troubled restaurant beat on earnings and missed on revenue.
- Chipotle missed on same-store sales but margins improved.
- The company has an execution problem and is ripe for an activist investor.
Chipotle Mexican Grill can not seem to get out of the way of the bad press. The restaurant had finally recovered from the E.coli outbreak that happened in December 2015. Same-store sales numbers were getting better as people were finally eating at the fast-casual restaurant again. However, over the last two weeks, the company is back in the headlines for the wrong reasons. Last week, the company shut down a restaurant in Virginia where customers become ill with norovirus symptoms. Then days later in Dallas, rodents fell from the ceiling of a Chipotle restaurant. The company has been whacked with downgrade after a downgrade by analysts and this stock is the sickling of my portfolio.
The company reported earnings on Tuesday and the company beat earnings and missed on revenues. Chipotle reported earnings of $2.32/share versus analyst expectations of $2.18/share. In terms of revenue, Chipotle reported $1.17 billion versus analyst expectations of $1.19 billion. I estimated that Chipotle would report earnings of $2.10/share and revenue of $1.191 billion on Estimize. From the onset, this was a bad quarter for Chipotle because I was expecting more revenue since the company has spent a lot on changing things.
Looking at the quarter in-depth, the fast-casual restaurant grew its revenue by 17% although it’s been hampered by these food scandals. In terms of same-store sales, a key number that would show if Chipotle was really executing and improving the company missed expectations. The company reported same-store sales of 8.1% versus expectations of 9.5%. The company was able to improve its operating margin to 18.8% from 11.6% and this exceeded most expectations. Another positive that came from this report was that management reaffirmed its 2017 financial guidance despite the negative news over the last two weeks.
Grade:D
This was another disappointing quarter from Chipotle and the negative news does not help the company’s image too. Although management reaffirmed guidance I don’t see how they going to generate increased same-store sales with such poor execution from management. This company needs new management and the board of directors needs to start thinking about that.
Disclosure: Cresco Investments has a long position in Chipotle Mexican Grill, Inc.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.
