Chipotle (CMG) Down 12.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Chipotle Mexican Grill (CMG). Shares have lost about 12.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Chipotle Q1 Earnings & Revenues Top Estimates, Rise Y/Y

Chipotle reported solid first-quarter 2022 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. The top and the bottom lines increased on a year-over-year basis.

Q1 Earnings & Revenue Discussion

During first-quarter 2022, adjusted earnings of $5.70 per share beat the Zacks Consensus Estimate of $5.63 by 1.2%. The bottom line improved 6.3% from $5.36 reported in the year-ago quarter.

Quarterly revenues of $2,020.5 million surpassed the consensus mark of $2,008 million by 0.7%. The top line increased 16% on a year-over-year basis. The upside can be primarily attributed to robust comparable restaurant sales and new restaurant openings. In the quarter under review, Chipotle opened 51 new restaurants, taking the total restaurant count to 3,014.

Digital sales contributed 41.9% to sales during the quarter. During the first quarter, comparable restaurant sales increased 9% year over year, following growth of 15.2% (in fourth-quarter 2021), 15.1% (third-quarter 2021), 31.2% (second-quarter 2021), 17.2% (first-quarter 2021) and 5.7% (fourth-quarter 2020).

Costs, Operating Highlights & Net Income

During first-quarter 2022, food, beverage and packaging costs, as a percentage of revenues, increased 100 basis points (bps) year over year to 31%. The upside was primarily driven by a rise in beef, paper and avocado costs. However, this was partially offset by benefits from menu price increases.
During the reported quarter, restaurant-level operating margin came in at 20.7%, down from 22.3% in the year-ago quarter. The decline was primarily due to increases in hourly wages and higher food costs, which weremarginally overshadowed by leverage from menu price increases and lower delivery costs.

Adjusted net income in the reported quarter amounted to $161.4 million compared with $153.1 million in the prior-year quarter.

Balance Sheet

Chipotle continues to impress investors with a solid financial position. As of Mar 31, the company reported cash and cash equivalent of $615.9 million, compared with $815.4 million.

Inventory totaled $29.9 million as of Mar 31, 2022, compared with $32.8 million as of Dec 31, 2021. Goodwill (as a percentage of total assets) came in at 0.3% at the end of first-quarter 2022.

During the first quarter, the company repurchased $260.1 million worth of stock at an average price of $1,490. Management approved an additional $300 million (exclusive of commissions) to repurchase shares. As of Mar 31, the company had approximately $280.8 million available for the buyback program.

2022 Outlook

For 2022, the company expects comps growth in the range of 10% to 12%. The company expects to open 235 to 250 new restaurants in 2022. It expects 2022 tax rate in the range of 25-27%.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Chipotle has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Chipotle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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