Chipotle Mexican Grill, Inc. (NYSE:CMG) – Big Earnings On Radar
Chipotle Mexican Grill, Inc.(NYSE:CMG) is scheduled to report fourth quarter earnings tonight after the close. There is a conference call scheduled for 17:00 (the company typically guides in the press release). Capital IQ consensus calls for EPS of $1.85 (versus $3.84 last year) on revenue of $1.008 billion (-5% YoY). The company provided guidance for Q4 of $1.70-1.90 on January 6th. That guidance was below the Capital IQ consensus of $2.52 at that time. The company is expected to guide for the first quarter where Capital IQ consensus stands at $2.07.
The first area of interest will be comps and the impact of the norovirus incident. On the January 6th, pre-announcement, the company said that Q4 comps will fall -14.6% vs a decline of 8-11% prior guidance. The company said following the isolated norovirus incident during the week of December 7 in a Chipotle restaurant in Brighton, Massachusetts, which garnered national media attention, comparable restaurant sales decreased to average -34%, and then recovered to -31%. Following this announcement and related national media attention, CMG’s comparable restaurant sales trended down to -37%. For the full month of December, comparable restaurant sales were -30%. Future sales trends may be significantly influenced by further developments. The company is also expected to update its guidance for FY16 comps. Current Street expectation call for a decline of 5.6%. Telsey Advisory Group has reduced sales and earnings expectations (again) for both this year and 2016 and 2017. However, given co’s disclosure of a criminal investigation of co related one of its recent food-borne illness outbreaks, the pile-on of potential negative publicity related to that investigation adds an unexpected and difficult to quantify risk factor to their est to a recovery in co’s SSS and EPS. For that reason, the firm cautions that ests could continue to require further revision.
The next area of interest will be margins. Taking a look at last quarter, the company reported restaurant level operating margin was 28.3%, a decrease of 50 basis points YoY. Looking ahead to the fourth quarter, the company said it expects margins between 20-21% which was lowered from prior guidance of 22-24%. UBS believes a high degree of caution is prudent given: 1) the negative drag on brand perception over at least the near to medium-term and 2) uncertainty around the LT margins and cash returns on new units.
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