Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Chipotle Mexican Grill (CMG 0.76%) dropped nearly 7% Tuesday after the popular burrito maker reported better than expected third-quarter results, but followed with a disappointing outlook.
So what: Helped by a combination of new locations, a well-received menu price increase, and record 19.8% comparable-restaurant sales growth, Chipotle's quarterly revenue jumped 31.1% year over year, to $1.08 billion. That translated to an even more impressive 56% increase in diluted earnings per share, to $4.15. Analysts, on average, were looking for earnings of just $3.82 per share on sales of $1.06 billion.
Despite the beat, Chipotle merely reiterated its previous 2014 guidance for comparable-restaurant sales growth in the midteens. In addition, Chipotle initiated guidance for 2015, telling investors to expect softer comparable-sales growth in the low- to mid-single-digit range.
Now what: Keeping in mind that comps increased 17% for the first nine months of the year, investors can't help but wonder why Chipotle did not boost its 2014 guidance. In addition, the market obviously isn't happy about the company's softer 2015 outlook.
Even so, remember that around this time last year Chipotle was predicting 2014 comps to be in the low single-digit range, so it's quite possible management is simply playing it safe. Chairman and Co-CEO Steve Ells even explained during the quarterly conference call that, to predict comps, executives simply take "current sales trends and ... literally just push them out over the next 14 months, for the rest of the year and then for all of 2015." He later mused, "And hopefully the comp guidance we have today will come back and say, boy it looked conservative at the time."
If that turns out to be the case, today's drop might well prove to be a fantastic buying opportunity for patient long-term investors.
