uploads/2015/12/Same-Store-Sales-Growth-versus-Revenue-and-EPS-Growth-2015-12-181.jpg

How Much Could the E. Coli Outbreak Affect Chipotle?

By

Updated

Revenue drivers

A restaurant company makes its revenue from its existing stores and by adding new units. For an established company such as Chipotle Mexican Grill (CMG), most of its revenue growth comes from its existing stores.

Article continues below advertisement

The trends

In the chart above, we can see that Chipotle’s revenue has trended closely with its same-store sales growth. With an expectation of same-store sales growth to come in at -9.5% (management’s guidance midpoint), its revenue is expected to decline by 32% in 4Q15 alone. Further, the company’s earnings per share growth (or EPS) in the most recent quarters also trended with its same-store sales growth. We will look at EPS growth later in this series.

You may consider a more diversified portfolio such as the Consumer Discretionary Select Sector SPDR ETF (XLY). Currently, Chipotle (CMG) forms 1% of XLY’s total portfolio. XLY also holds 4% of McDonald’s (MCD), 1.5% of Yum! Brands (YUM), and 3% of Starbucks (SBUX) as a percentage of its total portfolio.

Revenues hurt

When the first cases of E. coli were linked to Chipotle, the company shut down 43 of its restaurants for a week. Chipotle earns about $2.3 million in average restaurant sales per store for the trailing 12 months at its restaurants in operation.

Based on this figure of earning $2.3 million per year, we can calculate that Chipotle earns about $48,600 in average sales at each restaurant location per week. This means that a one-week closure of 43 restaurants would add up to an approximate loss of $2 million in total sales for Chipotle in 4Q15. However, more incidents were linked to the company in the following months.

The analysts expect the company to report sales of $1.1 billion, which is down $0.49 billion from $1.6 billion in 4Q14.

Advertisement

More From Market Realist