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Chipotle Earnings: Will the Momentum Continue?

By Daniel Vena – Apr 21, 2019 at 4:08PM

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The company's turnaround is the stuff of legend, but expectations may be getting too high.

If there were ever a story of an epic turnaround, Chipotle (CMG 0.47%) would be in the running. After enduring a seemingly endless series of foodborne illness outbreaks, the company has recovered its footing under the tutelage of CEO Brian Niccol. Since bottoming out early last year, the stock has come roaring back, gaining over 170% in the process.

Chipotle will be providing investors with its latest update when the company reports the financial results of its first quarter after the market closes on Wednesday, April 24. Let's recap Chipotle's fourth-quarter performance and look at recent events to see if we can get any insight into what investors can expect when the company reports.

A partially eaten Chipotle burrito with a side of guacamole and chips.

Image source: Chipotle.

Tasty results

For the fourth quarter, Chipotle reported revenue of $1.23 billion, up 10.4% year over year and easily surpassing analysts' consensus estimates of $1.19 billion. This showing resulted in adjusted earnings per share that increased 11% to $1.72, soaring past estimates of $1.37.

Same-store sales stole the show, growing 6.1% year over year, far above the 4.5% Wall Street expected. It's important to note that comps rose on a combination of not only menu price increases but also increasing foot traffic.

Niccol has been investing heavily in digital and marketing, and those efforts are taking root. Digital orders rose to $158.6 million -- a 66% increase -- and accounted for 13% of total sales.

Recent events

Early this year, Chipotle finally addressed a long-standing concern of many patrons. Numerous studies had shown that the average customer could easily consume 1,000 calories when dining at the chain. The generous portions and heavy calorie count of its offerings were off-putting for those watching their weight. In response to those concerns, Chipotle introduced Lifestyle Bowls, lower-calorie options based on a number of popular diet plans. Those offerings included Keto, Paleo, Whole30, and double protein options.

Last month, the company expanded those choices to include "Plant-Powered" bowls, which cater to vegan and vegetarian customers. The bowls include Sofritas, Chipotle's vegan protein option made from organic soybeans, which are shredded and seasoned to provide "a delicious alternative to traditional meat without skimping on flavor," according to the company. 

This provides another alternative for those who don't eat meat, but it probably won't move the needle, since it will represent just a small portion of Chipotle's sales.

Chipotle ad showing its Plant-Powered bowls.

Image source: Chipotle.

What the quarter could hold

Chipotle doesn't provide quarterly guidance, and the company only covered broad strokes for the year. Management expects comparable-store sales increases for the full year in the low to mid-single digits and is planning to open between 140 and 155 new restaurants in 2019.

To better understand Wall Street sentiment, we can look to its expectations, though investors don't want to get trapped in its practice of short-term thinking. Analysts' consensus estimates are calling for revenue of $1.26 billion, up about 10% year over year, and adjusted earnings per share of $2.99, up 40% from the prior-year quarter.

Those expectations may be a little ambitious, especially since Chipotle's adjusted earnings per share increased just 11% year over year last quarter. The stock's recent performance is another consideration, as it's gained more than 100% over the past year, hitting a three-year high last week. This performance has led some analysts to downgrade the stock and advise caution going into next week's earnings report. Chipotle is currently trading at 55 times its expected 2019 earnings, which is pretty lofty considering the challenges that remain.

Those considerations shouldn't matter to long-term investors, but forewarned is forearmed, and investors should be mentally prepared should Chipotle take a tumble when it reports earnings.

Danny Vena owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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