Chipotle Mexican Grill (CMG) Stock Pummeled After Earnings Miss

Shares of Chipotle Mexican Grill Inc. (CMG) closed down -32.79 or -5.94 percent to $519.61 per share in active trading on Thursday, after the company announced first quarter earnings that came in below analyst expectations. The stock initially traded sharply higher after the earnings release, rising as much as +8.6 percent in pre-market trading on Thursday, but during the day, the stock reversed direction and traded sharply lower after investors realized the chain would have to raise prices on its menu.

Denver, Colorado based Chipotle Mexican Grill Inc. is a restaurant chain founded by Steve Ells in 1993, with 16 locations in Colorado. McDonaldâ s Corporation (MCD) then invested heavily in the company in 1998. McDonaldâ s divested its shares in the company in 2006 after the company had grown to 500 locations. With the opening of 44 new restaurants in the fourth quarter of 2013, the restaurant chain now has 1,639 locations in the United States, Canada, France and Germany and employs more than 37,000 people worldwide. The sharp rally in Chipotle stock was in large part due to the significant improvement in revenue, which rose +24.4 percent to $904.2 million, versus analyst expectations of $873 million. Due to higher customer traffic, comparable restaurant sales increased +13.4 percent, while restaurant operating margin declined to 25.9 percent, a drop of 40 basis points. Nevertheless, earnings came in at $2.64 per share, missing analyst estimates of $2.86 per share on revenue of $874 million. The $0.20 earnings shortfall was in large part due to rising costs for beef, cheese and avocados. Beef prices hit a 27 year high of $5.28 per pound according to the United States Department of Agriculture. The increases in food prices led to the company announcing it would increase prices on its menu, with steaks on the menu already having risen +25 percent since late last year. Despite higher costs and a hike in menu prices, Chipotle still sees single digit comparable sales growth for the rest of the year and expects to open 180 to 195 new restaurants. In addition, the company announced it would purchase an additional $100 million of its own stock through its repurchase program. Chipotle still has $77 million from its March 31st authorization. Steve Ells, Chipotle founder and co- CEO stated that, â

Published on Apr 18, 2014
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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