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Chipotle’s Weak Outlook for 2016: Analysts Revise Estimates

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Same-store sales growth revision

After Chipotle Mexican Grill (CMG) announced its 4Q15 results, analysts revised their same-store sales growth downward. We believe the downward revision was largely due to January 2016 numbers, which stood at -36%.

Chipotle has implemented enhanced food safety measures. But customers are still sceptical about visiting Chipotle and are very unsure about the safety of the food being served. This could have prompted analysts to revise their estimates downward from -17.4% to -21.2% for 1Q16.

Analysts have also revised same-store sales growth downward for 2Q16 and 3Q16. However, they have raised their estimates for 4Q16, which could be due to the expectations of a comeback.

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Revised adjusted EPS

With same-store sales growth, revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) margins revised downward, it’s expected that estimated EPS (earnings per share) will also decline. Analysts have revised their 1Q16 EPS estimate to about $0.38 from an earlier estimated $2. Similarly, analysts have revised their EPS estimates downward for the remaining three quarters of 2016.

To mitigate such risks, you can divest your investments by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY), which has invested in McDonald’s (MCD), Starbucks (SBUX), and Yum! Brands (YUM).

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