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Ouch! How Chipotle Mexican Grill, Inc. Just Whiffed

By Daniel Sparks - Oct 25, 2017 at 10:21AM

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Here's a close look at the metrics behind Chipotle's disappointing third quarter.

Low expectations weren't enough for Chipotle (CMG -0.04%) to over deliver when it reported its third-quarter results on Tuesday. The company still somehow managed to fall short of expectations. Revenue, earnings per share, and comparable restaurant sales were all below analyst estimates. Chipotle even moderated its plans for new stores and lowered its guidance for full-year comparable restaurant sales.

Investors weren't happy with the news. The stock came tumbling lower, losing 9% in after-hours trading on Tuesday after the fast-casual restaurant chain reported its third-quarter results.

Chipotle burrito, chips, and guacamole

Image source: Chipotle.

Here's a look at the different ways Chipotle missed the mark in its third quarter.

Revenue and adjusted EPS were below estimates

For its third quarter, Chipotle reported revenue of $1.13 billion and earnings per share of $0.69. Adjusting Chipotle's earnings per share to account for estimated charges related to a data security incident and the impact of hurricanes Harvey and Irma, earnings per share was $1.46.

These results are up from revenue and EPS of $1 billion and $0.27 in the year-ago quarter, highlighting the company's rebound from food safety scares a year ago. But revenue is still lower than the $1.2 billion of revenue the company reported in the third-quarter of 2015 -- before Chipotle's E. coli issues. In addition, Chipotle's earnings per share are still drastically lower than they were two years ago. In Chipotle's third quarter of 2015, quarterly EPS was $4.59.

Making matters worse, Chipotle's third-quarter revenue and adjusted EPS also missed analysts' consensus estimate. On average, analysts expected Chipotle to report adjusted third-quarter EPS of $1.64 on revenue of about $1.14 billion.

Comparable restaurant sales were disappointing

If there's one area Chipotle was likely to beat expectations, it was comparable restaurant sales. On average, analysts expected comparable restaurant sales to rise just 1.1%. But Chipotle's comparable restaurant sales were up just 1%, even with a 1.1% benefit from comparing against revenue in the year-ago quarter that was negatively impacted by a one-time revenue deferral of outstanding loyalty program rewards.

But Chipotle's comparable restaurant sales trends look even worse when investors look to the company's guidance for the key metric. In its second quarter, management had forecasted for comparable restaurant sales for the full year of 2017 to increase by a rate in the high single digits, likely meaning anywhere between about 6% and 9.5%. But with only one calendar quarter left in the year, management is more conservative. In Chipotle's third quarter, management said it expected full-year comparable restaurant sales to increase 6.5%, or at the lower end of management's previously guided range.

Chipotle pulled back on its growth plans

Chipotle's guidance for its restaurant openings was also disappointing. Management said it now expects new restaurant openings to be slightly below the low end of its previous forecast for 195 to 210 new restaurants.

On a similar note, Chipotle's guidance for full-year 2018 restaurant openings was significantly below previous years. The company said it plans to open just 130 to 150 new restaurants next year, representing growth of about 6% over the company's nearly 2,400 restaurants today.

Apparently, Chipotle's launch of its queso toward the end of the quarter wasn't enough to provide the restaurant chain with a surprise boost. Even worse, Chipotle's moderated outlook for store openings -- and its soft guidance for store openings next year -- suggests the company's growth ambitions may get put on the back burner as operations in existing stores and public relations initiatives require more attention from management than expected.

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