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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.

Should Investors Buy CMG After The Recent Development? Find Out Here

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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