Stocks climbed through most of the trading session on Friday to end the day near session highs. The Dow Jones Industrial Average (DJINDICES:^DJI) gained 46 points, or 0.3%, as the broader S&P 500 (SNPINDEX:^GSPC) added 10 points, or 0.5%, to set a new record.
Chipotle returns to profitability
Chipotle shares spiked 6% higher after the burrito chain posted a return to profits even as customer traffic levels continued to slump. Net income dove by 80% to $26 million this quarter, but that still marked a welcome turnaround from Q1, when CMG revealed its first (and investors hope, last) quarterly loss as a public company.
Still, comparable-store sales trends showed that CEO Steve Ells and his team have plenty of work ahead to recover from the food safety scare that derailed growth trends last winter. Comps fell by a brutal 24%, marking just a slight improvement from a 29% drop in the first quarter.
Profit numbers reflected that huge customer-traffic drain as operating margin sank to 16% of sales from 28% in the year-ago period.
Looking into Q3, executives said they are optimistic about a new loyalty program, called Chiptopia, that they believe is tied to a further 3 percentage-point improvement in comps so far in the new quarter. "Our entire company is focused on restoring customer trust and reestablishing customer frequency," Ells said in a press release, "and rewarding our most loyal customers for visiting more often through Chiptopia is one way to do just that." It's unclear when, or even if, Chipotle will regain its prior high-growth pace. However, the profit turnaround and improving traffic trends are encouraging signs for the business.
Skechers' growth slows
Footwear specialist Skechers saw its stock plunge by 22% after posting surprisingly weak Q2 results. Revenue rose 10% to $878 million for a significant slowdown from the prior quarter's 27% jump. Wall Street pros were expecting closer to $890 million of sales. Earnings of $0.48 per share also undershot the $0.52 per share analysts were targeting.
Sketchers' U.S. wholesale business declined, swinging from a 12% boost in Q1 to a 5% drop this quarter. Management said most of this drop had to do with a timing issue that pulled sales from the second quarter into the first quarter. Looking at the past six months in aggregate, where overall revenue improved by 18%, paints a more accurate picture of business trends, they explained.
Meanwhile, the company's international expansion has executives' attention right now. Skechers plans to operate 1,600 retail locations by the end of the year, with new markets like Belgium, Norway, and Finland helping push the international portion of that total to more than 1,100.
Investors were still spooked by the growth slowdown, especially since it came with a disappointing sales forecast from management. "As international becomes a larger piece of our total business, we believe there is upside opportunity" for Q3, Chief Financial Officer David Weinberg said in a press release, while targeting roughly $970 million of sales. That outlook was below consensus estimates forecasting $1 billion of revenue in the quarter.