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Chipotle Stock Surges in After-Market Hours on Strong Q2 Earnings

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Second-quarter performance

Chipotle Mexican Grill (CMG) posted its second-quarter earnings on July 26 after the market closed. The company posted adjusted EPS (earnings per share) of $2.87 on revenues of $1.27 billion, which beat analysts’ EPS estimate of $2.80 and revenue estimate of $1.26 billion. Also, the company’s SSSG (same-store sales growth) of 3.3% outperformed analysts’ estimate of 2.7%.

After posting its second-quarter earnings, Chipotle’s management raised its SSSG guidance for 2018 to low to mid-single digits from an earlier estimate in the low single digits. The strong second-quarter earnings appear to have pushed the company’s stock up ~6.5% in the after-market hours of July 26.

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Year-over-year growth

Year-over-year, Chipotle’s revenue rose 8.3%. The revenue growth was largely driven by the addition of new restaurants and to a lesser extent by positive SSSG (same-store sales growth). By the end of the quarter, Chipotle operated 2,467 restaurants, which was 128 restaurants more than the company operated in the corresponding quarter of the previous year. Chipotle’s SSSG was driven by an increase in average check size partially offset by a fall of 1.8% in its transactions. The average check size increased due to an increase of 4.0% in menu price and a favorable mix.

Chipotle’s digital sales grew 33% during the quarter to form 10.3% of the total sales, while the revenue from delivery increased fourfold. Currently, the company provides delivery service from 1,700 restaurants and plans to expand it to all restaurants by the end of 2018.

EPS growth

Chipotle posted EPS of $1.68 for the second quarter. However, removing one-time or special items, the company’s adjusted EPS was at $2.87, a rise of 23.7% from $2.32 in the second quarter of 2017. The EPS growth was driven by sales leverage from positive SSSG, lower food costs due to the increase in menu prices, lower avocado prices, and lower marketing and promotional spending. However, some of the EPS growth was offset by wage inflation and an increase in general and administrative expenses.

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