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Why Is Chipotle (CMG) Down 9.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Chipotle Mexican Grill (CMG - Free Report) . Shares have lost about 9.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Chipotle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Chipotle Earnings & Revenues Beat Estimates in Q4

Chipotle Mexican Grill, reported fourth-quarter 2019 results, wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate. While the bottom line beat the consensus estimates for the ninth straight quarter, the top line came ahead of the same for the fifth consecutive quarter. Following the results, the company’s shares gained 1.5% in after-hour trading session on Feb 4.

The company’s adjusted earnings of $2.86 per share surpassed the Zacks Consensus Estimate of $2.74. The bottom line also improved 66.3% from the year-ago quarter, driven by increased revenues and strong operating margins.

Chipotle’s increased focus on augmenting customer experience by introducing food-safety programs, various sales-building initiatives and greater digital innovation resulted in revenue growth in the fourth quarter.

Revenues & Comparable Restaurant Sales

Quarterly revenues of $1.4 billion surpassed the consensus mark by 2.7% and improved 17.6% year over year. This upside can primarily be attributed to improvement in comps and restaurant openings. In the quarter under review, Chipotle opened 80 restaurants and closed three, taking the total restaurant count to 2,622.

Comps in the fourth quarter rose 13.4%, driven by a rise of 8% in comparable restaurant transactions and an increase of 5.4% in average check.

Costs, Operating Highlights & Net Income

Food, beverage and packaging costs, as a percentage of revenues, decreased 10 basis points (bps) to 33.1% on the back of menu price increases and favorable avocado pricing, partially offset by higher costs of ingredients.

Restaurant-level operating margin was 19.2%, up 220 bps from 17% in the year-ago quarter. This upside was primarily driven by comps growth, partially negated by wage inflation, increased food costs, and marketing and delivery expenses.

Net income in the reported quarter amounted to $72.4 million, up from $32 million in the prior-year quarter.

Balance Sheet

Cash and cash equivalents as of Dec 31, 2019, were $480.6 million compared with $250 million as of Dec 31, 2018.

Inventory totaled $26.1 million as of Dec 31, 2019, down from $21.6 million as of Dec 31, 2018. Goodwill, as a percentage of total assets, was 0.4% at the end of the fourth quarter compared with 1% at the end of 2018.

2020 Outlook

For 2020, management expects comps to grow in a mid-single digit. The company estimates effective tax rate between 26% and 29%. It expects to inaugurate 150-165 restaurants in 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -6.16% due to these changes.

VGM Scores

Currently, Chipotle has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Chipotle has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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