Can Chipotle’s Earnings Stop the Bleeding?

Print Email

Chipotle Mexican Grill Inc. (NYSE: CMG) is scheduled to release its most recent quarterly results after the markets close on Tuesday. This comes after a wave of bad press that the burrito chain has faced since a recent health scare at one of its restaurants. Whether this earnings report can help pull Chipotle out of this tailspin has yet to be seen.

News broke last week that a Chipotle restaurant in Sterling, Virginia, has infected some of its customers with what seems to be the norovirus. The restaurant was shut down initially for sterilization but was later reopened.

The Denver-based burrito chain has been tainted by food-borne viruses since an E. coli outbreak in the fall of 2015 and a norovirus case in Boston later that year.

In the wake of these outbreaks, Chipotle reexamined its supply chain and how to maintain a high quality for its ingredients while still sourcing local providers. This was successful for about 18 months when the chain was illness-free. Now everything is being called into question.

Chipotle also updated its guidance at the end of June, which followed its investor gathering. It expects 2017 same-store sales growth in the “high single digits” percentage range, below the 10.1% that the FactSet consensus calls for. Operating costs for the second quarter are also expected “to be at or slightly higher” than the first quarter.

In filing, Chipotle said:

For the second quarter of 2017, we continue to expect food costs to be approximately 34.2% of sales, and marketing and promotion costs to be up approximately 20 to 30 basis points versus the first quarter of 2017 to 3.6%-3.7% of sales. As a result, we expect other operating costs as a percentage of sales for the second quarter to be at or slightly higher than reported for the first quarter.

For the full year, we continue to expect comparable restaurant sales increases in the high single digits, 195-210 new restaurant openings, and an estimated effective tax rate of approximately 39.0%.

Thomson Reuters has consensus estimates of $2.18 in earnings per share (EPS) and $1.19 billion in revenue. In the same period of last year, it posted EPS of $0.87and $998.38 million in revenue.

Shares of Chipotle were last seen on Tuesday trading up 2.3% at $347.94, with a consensus analyst price target of $422.12 and a 52-week range of $336.52 to $499.00.