Earnings beat estimates
Chipotle Mexican Grill (CMG) reported its 2Q15 earnings on July 21, with an earnings per share of $0.45 that beat analysts’ estimates of $0.43. Shares were up 2.2%, or $14.37, at $687 in the after-hours trading session.
Although the company’s same-store sales growth came in significantly lower, it was still in line with the management’s guidance of low to single digits. Below are some of the other key highlights from Chipotle’s earnings.
Key financial highlights
Chipotle Mexican Grill (CMG) saw several positive metrics in its 2Q15 report, as detailed below.
Total sales were $1.2 billion, compared with $1.05 billion a year ago in 2014. This was a 14.1% growth in sales, which slowed down, as we saw earlier.
Restaurant level margins improved to 28%, compared with 27.3% in the corresponding quarter a year ago. This was driven by decreased food costs, which were lower by 1.5% year-over-year, or 33.1% as a percentage of sales. The lower food costs resulted from lower dairy and avocado costs. According to the company, beef costs added 1% to the food costs, but it expects the beef costs to remain elevated.
Labor costs increased by 0.8% to 22.6% as a percentage of sales, due to “ineffective labor scheduling and execution,” according to the company. Hourly labor rates also saw an 4.2% increase during the quarter.
The tax rate for the quarter was 38.8%.
The company holds about $1.5 billion in cash on its balance sheet and has zero debt.
The company has reiterated its full-year comps growth, ranging from mid to low single digits. However, this excludes the effect from carnitas sales, as the company works to resume its pork supplies for the year.
Chipotle anticipates its tax for the full year to be higher at 28.7%, compared with 37.6% year-over-year.
The company’s board authorized an additional $100 million toward share repurchases, bringing the current total unauthorized limit to $170 million.
Chipotle continues to deliver double-digit sales growth year-over-year, It is moving into a more competitive environment as more fast-casual restaurants come onto the scene. This includes smaller players such as Shake Shack (SHAK) and Habit (HABT), as well as bigger players such as Panera Bread (PNRA), which have food policies similar to that of Chipotle.
While the company faces these headwinds, it continues its investments toward growing units in underpenetrated markets and added 43 units during the quarter. You can mitigate these risks by considering the Consumer Discretionary Select Sector SPDR ETF (XLY), which holds 10% of restaurant stocks.
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