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Why Did Analysts Lower Their Estimates for Chipotle?

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SSSG estimates

To improve its SSSG (same-store sales growth), Chipotle Mexican Grill (CMG) launched chorizo, a new menu item, across the US. It’s focusing on enhancing customers’ experience at its restaurants by utilizing digital technology.

The company also plans to implement a digital ordering and payment system for its catering and delivery services. Chipotle expects these initiatives combined with marketing and promotional activities to improve its SSSG for the next four quarters. The company expects its SSSG to be in negative low-single digits in 4Q16 and in high-single digits for 2017.

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However, after weak 3Q16 sales, analysts lowered their SSSG estimates for the next three quarters. Currently, analysts expect the company to post SSSG of -2.3%, 13.1%, 8.7%, and 6.5% in 4Q16, 1Q17, 2Q17, and 3Q17, respectively. Before its 3Q16 results, they expected the company to post SSSG of -1.1%, 13.3%, 9.2%, and 5.8%.

EPS estimates

In 3Q16, Chipotle posted an adjusted EPS of $0.79—a fall of 82.8% year-over-year. The fall in the EPS was due to lower revenue growth and a contraction in Chipotle’s margins. With SSSG expected to improve, the company’s management expects it to post EPS of $1 in 4Q16 and $10 in fiscal 2017.

After weak 3Q16 earnings, analysts lowered their EPS estimates for the next four quarters by 10.5% from $9 to $8.1. The new estimate represents growth of 146% from $3.3 in the same quarters last year.

Peer comparisons

For the next four quarters, analysts expect Panera Bread (PNRA) and Shake Shack (SHAK) to post EPS growth of 12% and 23.9%, respectively.

Next, we’ll look at how Chipotle’s 3Q16 earnings impacted its price-to-earnings multiple.

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