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Chipotle Stock Rises Due to Strong Q1 Performance


Apr. 22 2020, Updated 8:18 a.m. ET

Chipotle Mexican Grill (NYSE:CMG) reported its first-quarter earnings on Tuesday after the market closed. For the quarter, the company reported an adjusted EPS of $3.08 on revenues of $1.41 billion. The company beat analysts’ EPS expectation of $2.90, while its revenue was in line with the estimates. The company posted an SSSG of 3.3% for the quarter due to impressive growth in digital sales. Meanwhile, Chipotle withdrew its previous guidance for this fiscal year due to uncertainty amid COVID-19. The company’s stock price rose due to investors’ optimism about the impressive first-quarter earnings and SSSG. Chipotle was trading over 5% in Tuesday’s after-market trading.

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Chipotle’s revenue rose

During the first quarter, Chipotle’s revenue rose 7.8% from $1.31 billion in the first quarter of 2019 to $1.41 billion. The positive SSSG and new restaurants helped the company’s revenue. Chipotle reported an SSSG of 3.3% during the quarter with a leap day contributing 1.3%. The SSSG was driven by an increase of 4.9% in the average check size, which included a 2.0% contribution from favorable pricing. However, during the quarter, the company’s transactions fell by 1.4%. Meanwhile, the company reported an impressive SSSG of 12.1% in January and 17.1% in February. However, as the COVID-19 spread across the US in March, its SSSG fell by 16% during the month.

In the first quarter, Chipotle’s digital sales grew by 80.8% to $371.8 million, which formed 26.3% of its total sales. With the outbreak of COVID-19, Chipotle closed its dine-in space and only operated its delivery and take-out services. So, the company increased its investments in digital and delivery services, which reduced the friction between the processes and increased convenience for customers. Chipotle also signed a nationwide delivery partnership with Uber Eats. All of these initiatives helped the company’s digital sales to rise by 102.6% during March.

In the first quarter, Chipotle added 17 new restaurants, which took the total restaurant count to 2,638 by the end of the first quarter. The restaurant count increased by 134 units compared to the end of the first quarter of last year.

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EPS declined in Q1

Although Chipotle’s top line increased, its bottom line fell during the quarter. The company reported a diluted EPS of $2.70 for the quarter. However, removing special items, the adjusted EPS was $3.08, which represents a fall of 9.4% from $3.40. The increase in the company’s operating expenses dragged its adjusted EPS down, which was partially offset by revenue growth. The increase in food, beverage, and packaging costs, labor expenses, pre-opening costs, and other operating expenses drove the company’s opening expenses during the quarter.

Compared to the first quarter of 2019, Chipotle’s food, beverage, and packaging costs increased from 32.2% of the total sales to 32.8%. The expenses associated with Chipotle Rewards and several ingredients’ increased prices caused the company’s food, beverage, and packaging costs to rise. However, higher menu prices partially offset some of the increases. Meanwhile, wage inflation increased the company’s labor costs from 26.7% to 27.9%. Higher marketing and promotional spending and higher delivery expenses due to increased delivery sales hiked the company’s other operating expenses from 13.4% to 14.9%.

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Chipotle’s outlook

Due to uncertainty amid COVID-19, Chipotle’s management withdrew its guidance for this year. Earlier, the company expected its SSSG to rise in the mid-single-digit range this year. The company expected to add 150–165 new restaurants. The outbreak dragged the company’s SSSG down in March. For the week ending on March 29, the company’s SSSG declined by 35%. However, Chipotle added that its SSSG started to improve this month. Last week, the company’s SSSG was down in the high teens after adjusting for the Easter holiday.

On the liquidity front, Chipotle had $909.2 million in cash, restricted cash, and short-term investments at the end of the first quarter. Meanwhile, the company also abandoned its share repurchase program to reduce cash outlays amid the difficult situation. The company expects $100 million of liquidity benefit from the CARES Act.

YTD stock performance

So far in 2020, Chipotle has lost 6.0% of its stock value. Meanwhile, the strong first-quarter performance could mitigate some of the declines. Despite the fall, the company has outperformed its peers and the broader equity market. During the same period, Shake Shack (NYSE:SHAK), McDonald’s (NYSE:MCD), and Starbucks (NASDAQ:SBUX) have fallen by 20.9%, 10.1%, and 17.3%, respectively. Meanwhile, the S&P 500 Index has declined by 15.3% during the same period.


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