Chipotle (CMG) Up 0.9% Since Last Earnings Report: Can It Continue?

A month has passed since Chipotle Mexican Grill (CMG) last reported earnings. Shares rose about 0.9% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Chipotle headed for a decline? 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 key drivers.

Chipotle’s first-quarter earnings and revenues topped estimates and increased year over year

Chipotle reported first-quarter 2024 results, with earnings and revenue surpassing the Zacks Consensus Estimate. Both profits and profits increased year-on-year.

During the quarter, the company benefited from increased throughput and effective marketing initiatives such as Braised Beef Barbacoa and Chicken Al Pastor, which led to strong sales and transaction growth. The company said the momentum continued into April.

Discussion on profits and revenues for the first quarter

For the quarter, Chipotle reported adjusted earnings per share (EPS) of $13.37, topping the Zacks Consensus Estimate of $11.63. Bottom line increased 27.3% from $10.50 reported in the prior-year quarter.

Quarterly revenue of $2.7 billion topped the consensus estimate of $2.68 billion by 1%. Revenues increased 14.1% year-over-year on strong comparable restaurant sales growth and new restaurant openings. During the reported quarter, Chipotle opened 47 new restaurants in 43 locations, including Chipotlane, and posted solid results in new restaurant sales, margins and returns.

Digital sales accounted for 36.5% of total food and beverage revenues.

Comparable restaurant sales increased 7% year-over-year compared to 8.4% growth reported in the prior quarter. Our estimate was set at 4.7%.

Costs, key operating data and net income

In the first quarter of 2024, food, beverage and packaging costs as a percentage of revenue were 28.8%, down 40 basis points year-over-year. The positive development can be primarily attributed to menu price increases introduced from October 2023. This was partially offset by beef and produce inflation and the challenge to the protein mix resulting from the Braised Beef Barbacoa marketing initiative. We proposed that this rate be 29.2%.

In the quarter, operating margin at the restaurant level was 27.5%, compared to 25.6% a year ago. This increase was due to the benefits of sales leverage, partially mitigated by wage and component inflation. We predicted that this rate would be 25.5%.

Adjusted net income for the reported quarter was $369.3 million, up 26.6% year-over-year. Our estimate for this metric was $308.2 million.

The story continues

Balance

As of March 31, 2024, the company reported cash and cash equivalents of $727.4 million, compared to $560.6 million as of December 31, 2023.

As of March 31, 2024, inventory was $37.9 million compared to $39.3 million as of December 31, 2023. Goodwill (as a percentage of total assets) at the end of the first quarter of 2024 reached 0.3%. .

During the first quarter, CMG repurchased $25 million worth of stock at an average price of $2,320. As of March 31, the company had approximately $399.1 million available for the buyback program.

Perspectives

Management expects the companies’ growth in 2024 to be in the mid- to high-single-digit range.

CMG expects to open 285-315 new restaurants in 2024. It suggests a tax rate for 2024 in the range of 25-27%.

How have estimates changed since then?

It turns out that estimate revisions have been trending upwards over the past month.

VGM results

At this point, Chipotle has a great Growth Score of A, although it lags slightly behind its Momentum Score with a B. However, the stock is rated F on the value side, ranking in the bottom 20% quintile for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. Notably, Chipotle carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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