Chipotle (CMG) Earnings Top Forecasts, Stock Down on Food Costs, Outlook

Shares of Chipotle Mexican Grill Inc. (CMG) were down -33.03 or -5.06 percent to $620.00 per share in premarket trading this morning after the company announced better than expected third quarter earnings after the market close yesterday. Chipotle shares closed at $653.03, up +11.31 or +1.76 percent in Monday's regular trading session.

Denver, Colorado based Chipotle Mexican Grill Inc. is a restaurant chain founded by Steve Ells in 1993, with 16 locations in Colorado.
McDonald's Corporation (MCD) then invested heavily in the company in 1998. McDonald's divested its shares in the company in 2006 after the company had grown to 500 locations. With the opening of 45 new restaurants in the second quarter of 2014, the restaurant chain now has 1,724 locations in the United States, Canada, France and Germany and employs more than 37,000 people worldwide.

Chipotle reported third quarter net income of $130.8 million or $4.15 per diluted share, up from $83.4 million or $2.66 in the same period one year ago. Revenue rose +31.1 percent to $1.08 billion versus $827 million in 2013's third quarter. Analysts expected the company to report earnings of $3.84 per share on revenue of $1.06 billion.

Chipotle opened 43 new restaurants in the quarter and forecast it would open 190 to 205 in 2015. The company said that it would open 180 to 195 new stores this year in their last quarterly earnings report. Chipotle stated that the report included a full month of higher menu prices.

Founder and Chief Executive, Steve Ells told analysts after the earnings release that, "While our performance has been particularly strong this year, our results have been solid throughout our history as a public company even through the depths of the recession and I am often asked how we continue to perform so well. The fact is there is no great mystery to it. Our ability to generate such strong sales growth is the result of our commitment to serving the best tasting food we can. Food that is made with ingredients from more sustainable sources and prepared using classic cooking techniques, and our commitment to having teams of top performers in our restaurants who are empowered to provide an extraordinary customer experience.

Comparable restaurant sales increased an impressive +19.8 percent in the quarter. Nevertheless, the company forecast comparable store sales growth in the mid teens for the rest of the year and in the low to mid single digits in 2015 as Chipotle begins to hike prices.

Restaurant level operating margin increased 2 percent from a year ago to 28.8% in the quarter driven by positive sales leverage. Food costs were higher in the quarter, making up 34.3 percent of revenue, a rise of +0.7 percent. The increase was due to higher beef, dairy and avocado prices.

Chipotle stock is selling off in this morning's premarket, indicating investor's disappointment at the comparable store sales outlook for next year and higher food costs. The stock is still up +24 percent from this year's low and more than 20 percent for the year. Chipotle continues to be one of the best performing publicly traded restaurant stocks.

Other News About Chiptole
Is Chipotle's Secret Chinese Brand ShopHouse Ready for Action?
Chipotle's new Asian food concept could be ready to take off.
Chipotle Celebrates Halloween with Boorito
Company will host its fundraiser for the Chipotle Cultivate Foundation.

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Published on Oct 21, 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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