Chipotle Mexican Grill is on the brink of revealing its second-quarter results, and all signs point to impressive performance once again.
Investors are filled with optimism, expecting Chipotle to either meet or surpass earnings expectations, which could potentially push the stock even higher. Already this year, the shares have surged by 51%, driven by robust financial results and the continued popularity of fast-casual dining.
Based on FactSet consensus estimates, analysts forecast that Chipotle’s earnings in the second quarter will grow by over 30% year-over-year to $12.31 per share. Furthermore, projected revenue of $2.53 billion suggests a solid 14% increase compared to the previous year.
One notable feature is the lack of debate surrounding Chipotle’s stock performance leading up to the second-quarter results. TD Cowen analyst Andrew Charles expressed confidence in the company, awarding it an Outperform rating and including it among his top five stock picks.
Over the past few quarters, Chipotle has made significant investments in innovation, contributing to increased sales and consumer engagement. The company has introduced new menu items, experimented with automating guacamole production, and recently announced its expansion into the Middle East with its first franchised restaurants.
Moreover, Chipotle is currently in the process of implementing a strategic plan known as Square One. This comprehensive initiative aims to enhance the company’s business fundamentals in the aftermath of the pandemic. Analysts anticipate that the effects of Square One will begin to manifest as early as this quarter, leading to improvements in both sales and profit.
Chipotle’s Improvement in Margins
According to William Blair analyst Sharon Zackfia, Chipotle is expected to experience a rise in its restaurant-level margin for the second quarter, increasing by 1.8 percentage points to reach 27.4%. This would represent Chipotle’s highest margin at the restaurant level since 2015. The potential boost in margins can be attributed to lower labor and commodity costs. Zackfia rates the stock as Outperform, indicating positive prospects.
Potential Risks and Cautious Approach
Despite the positive outlook, there are a few risks to consider. Stifel analyst Chris O’Cull notes that with high expectations preceding the quarterly report, there is little room for error. O’Cull rates the stock as a Buy. Additionally, Chipotle is not immune to macroeconomic factors that could lead consumers to take a more cautious approach towards spending.
Consumer Shift to Affordable Options
Chipotle has been benefiting from the trend of consumers looking for more affordable dining options. Rather than opting for sit-down restaurants, individuals are turning to fast-casual eateries like Chipotle to make their budget stretch further.
Interpreting Chipotle’s Results
Investors should approach Chipotle’s results with caution and consider their implications for other restaurants reporting earnings in the following weeks. These results should be taken with a grain of salt, or perhaps a side of guac, as they may provide insight into industry patterns.
Exceptional Performers in the Current Quarter
According to O’Cull, Chipotle ranks among the top performers this quarter, alongside McDonald’s (MCD) and Texas Roadhouse (TXRH). However, it is prudent to be wary of using their results as direct indicators for other companies reporting in the subsequent weeks.
