uploads///Same Store Sales Growth Impact

Should Chipotle Worry about Recent Downward Sales Trend?

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Jul. 7 2015, Published 1:22 p.m. ET

Why prices move

In the short term, volatility in share price can often result from a range of events in the market. This can happen in the absence of any company-specific announcement that might materially affect the share price. For example, the recent Greek debacle sent shares down 1.5%. We’ll look at some of the events that may have affected Chipotle Mexican Grill (CMG) stock prices in the past month.

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Is the market expecting lower same-store sales growth?

In the above graph, you can see that Chipotle’s same-store sales growth has closely trended with food service and drinking place retail trade growth. The recent two readings for food service growth on a three-month rolling average basis have trended downward. This could mean that the market is expecting a lower same-store sales growth for Chipotle in the second quarter.

Overall, weaker retail sales may indicate a weakness in the economy and can impact restaurants such as Shake Shack (SHAK) and Habit Burger Grill (HABT). This also negatively impacts the Consumer Discretionary Select Sector SPDR ETF (XLY). XLY holds 1% of Chipotle (CMG) and 0.3% of Darden Restaurants (DRI).

Analyst upgrades and downgrades

In June, investment firm Wedbush Securities slashed Chipotle’s price target from $665 to $620. It cited concerns over visibility on Chipotle’s same-store sales growth in the coming quarters.

Not all share the same growth expectations for Chipotle. In May, BMO Capital Markets upgraded Chipotle’s rating to outperform from market perform, with a price target of $760 from the previous $693. Miller Tabak also upgraded Chipotle to buy from hold, increasing the target price to $725 from $715 in May. In both cases, Chipotle increased by about 2%–3%.

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Insider sale

On May 22, 2015, Steve Ells, co-CEO (chief executive officer) and chairman of Chipotle, sold 17,500 Chipotle shares, reducing his total shares held to 107,133. The information came from Chipotle’s Form 4/A that it filed with the SEC (U.S. Securities and Exchange Commission).

It’s not an uncommon practice for executives of a public company to sell their shares. It’s legal as long as no material information was used to sell those shares. Offloading stocks by an insider may signal that the company’s executives aren’t confident about the future, but there’s more to it than meets the eye.

Buying and selling shares by an insider also occurs through an automatic sale. In an automatic sale, shares are up for sale on a predetermined date. The company notifies the SEC of the sale and the date. The recent insider sale of 17,500 shares by CEO Steve Ells appears to be part of a regular sale. So this insider trade was a routine sale, and investors may not have to worry.

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