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Chipotle Stock Has a Lot to Prove This Week

By Rick Munarriz – Apr 23, 2019 at 9:45AM

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Shares of the reinvigorated fast-casual pioneer have soared 113% over the past year.

It's not just the flour tortillas getting stuffed at Chipotle Mexican Grill (CMG 0.20%) these days. The chain's stock has been on fire -- more than doubling over the past year -- and it will have to earn its big gains when it steps up with its latest financial results.

Chipotle will offer up its first-quarter report shortly after Wednesday's market close. There's no such thing as a low-stakes earnings release when your stock has soared 113% over the past year, but there will be a lot of things to watch this time around. Comps have been positive for some time, but store traffic finally turned the corner in the fourth quarter. Are transactions per store still growing? Chipotle also launched its long overdue Chipotle Rewards program nationwide last month. Is it gaining traction beyond the initial promotional push?

Finally, we are now a year into former Taco Bell chief Brian Niccol's run as CEO at Chipotle. We know that Wall Street has responded since his arrival in March of last year, but what's he really doing to bring the chain back to its former glory? There are a lot of questions for the burrito roller to tackle this week. It better have the right answers. 

Interior shot of the Chipotle in Hollywood, California.

Image source: Chipotle Mexican Grill.

Unwrapping the tinfoil

Analysts have big expectations for Chipotle. They see revenue rising nearly 10% to hit $1.26 billion. Wall Street pros are also modeling a profit of $2.99 a share, well above the $2.13 a share it rang up a year earlier. The bottom-line growth spurt may seem ambitious, but Chipotle has beaten analysts' quarterly profit projections for more than a year. Given the helium in the shares after more than doubling over the past year, it better beat Wall Street targets again. 

Chipotle began the year with 2,491 eateries, and it's now north of 2,500. It expects to open 140 to 155 new restaurants this year, targeting positive comps in the mid-single digits for the entire chain. The average Chipotle location is now back above $2 million in annual sales -- where it was from 2011 through 2015 -- though it remains well below its 2014 peak of nearly $2.5 million. 

Mobile ordering and the growing popularity of delivery services are helping Chipotle and its peers offset sluggish walk-in traffic, but that's where last month's official rollout of Chipotle Rewards comes in. It's been three years since the chain promised a loyalty rewards program following its short-lived Chiptopia promotion, and the new offering doesn't seem to offer much of an incentive to play along beyond the $250,000 it gave away by teaming up with Venmo during the first few days of its mid-March launch. Do your really need to spend as much as $125 to grab a free entree? Chipotle should be able to share an early read on how the program is holding up beyond the Venmo cash giveaway. 

We will also get a good read on how the baron of burritos is faring a year into Niccol's tenure at the helm. He hasn't really been innovating on the menu front the way some figured would happen given the Frankenfood nature of Taco Bell's ever-changing menu, but with margins, comps, and the stock improving, you're not hearing too many complaints. Chipotle shares will be volatile in Thursday's trading session following Wednesday afternoon's report. There's a lot to fit inside that flour tortilla.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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