Stocks edged lower on international concerns as violence in Gaza proliferated over the weekend and the situation in Ukraine remained tense, though major indexes spent most of the day climbing back from session lows. By the end of the day, the Dow Jones Industrial Average (^DJI 0.26%) had fallen 48 points, or 0.4%, while the S&P 500 and Nasdaq lost 0.2%.
Earnings season heated up after hours, with reports from Chipotle Mexican Grill (CMG 0.12%) and Netflix (NFLX +1.06%). Chipotle shares soared on its release, climbing 10% as the burrito roller crushed estimates in its second-quarter report. Same-store sales jumped 17.3% thanks to a price increase, but customer traffic still drove the bulk of the improvement as operations became more efficient. Overall, revenue improved 28.6% to $1.05 billion, better than estimates of $990 million and earnings per share increased 24.1% to $3.50, blowing past expectations of $3.08. Despite the price increase, restaurant-level operating margin still fell 30 basis points to 27.3% because of higher food and marketing costs. Food costs were up 150 basis points to 34.6%. The results were strong enough to provoke management to raise its comparable sales guidance for the year as it now expects comps to increase by the mid-teens, up from high-single digits in its last report. As this report makes clear, Chipotle's high-quality food and unique employee culture have made it the leader in fast casual, and the company should continue to put up more strong growth numbers as it has a long road of new stores ahead of it.
Elsewhere, Netflix shares edged higher after hours, gaining 0.7% as the video streamer delivered results that were strong but essentially in line with expectations. Subscriber growth was strong in the quarter, as Netflix added 570,000 new domestic customers and 1.12 million internationally, bringing the grand total past 50 million for the first time. Profits more than doubled to $1.15 per share, but that was still a penny below estimates. Revenue, meanwhile, jumped 25.2% to $1.34 billion, matching estimates. Better things again seemed on the way from Netflix as the company expected 1.3 million subscriber additions in the current quarter, and it plans to launch in September in Germany, France, Austria, Switzerland, Belgium, and Luxembourg, expanding its potential customer base widely. Though Netflix stock carries a sky-high valuation, the company's business model and operating leverage should ensure that profits improve faster than revenue, and with its upcoming expansion into several European countries, it will now have access to 180 million international households. The stock may be fully priced at this point, though Netflix's competitive advantages are only getting stronger, and its position as the video entertainment leader continues to solidify.
