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How Chipotle’s Revenue Forecast Has Gone from Bad to Worse

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Updated

Revenue forecast

Chipotle Mexican Grill (CMG) earns the majority of its revenue from the US market. This is because about 99% of its restaurants are located within the borders of the United States.

Chipotle earns about $2.3 million in average restaurant sales for the trailing 12 months at restaurants in operation. In other words, each restaurant location makes about $2.3 million per year. Based on this figure, we can calculate that Chipotle earns about $49,000 in average sales at each restaurant location per week.

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Downward revision

Due to its temporary restaurant closures in recent months, Chipotle will lose some of its revenue. This makes it easy to see why its revenue is expected to be significantly impacted in its upcoming earnings release.

The above chart shows analysts’ revisions of the company’s revenue estimates following the E. coli incidents. As of January 25, 2016, 4Q15 revenue is estimated to come in at $1 billion, down from estimates of $1.1 million for the same quarter a month ago and down from estimates of $1.2 billion three months ago, when the E. coli event was not in the picture.

Chipotle’s 4Q15 revenue is now expected to fall -6% year-over-year from a 13% growth that was estimated three months ago. If you take the E. coli event out of the picture, the company’s revenue was estimated to grow 14.4% year-over-year in 4Q15.

Such events come without warning, but you can diversify risk by investing in a broader portfolio such as the Consumer Discretionary Select Sector SPDR ETF (XLY), which invests about 1% in Chipotle. Along with Chipotle, XLY will also give you exposure to Starbucks (SBUX), McDonald’s (MCD), and Darden Restaurants (DRI).

The above revisions are due to negative expectations of same-store sales growth, which we’ll discuss in the next part.

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