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James Li
James Li
Articles (388)  | Author's Website |

Chipotle Sinks on Lower 2018 Outlook

Company slightly misses on analyst expectations for 4th-quarter 2017

February 06, 2018 | About:

Chipotle Mexican Grill Inc. (NYSE:CMG), a restaurant specializing in fast-casual Mexican food, reported fourth-quarter diluted earnings of $1.55 per share, including a tax benefit of 21 cents per share. Although the company’s revenue increased 7.3% year over year, revenues of $1.1 billion were slightly lower than analyst expectations.

Brief summary of earnings

The Denver-based restaurant chain increased comparable restaurant sales by 0.9% for the quarter and 6.4% for 2017, driven primarily by higher menu prices. Founder and CEO Steve Ells mentioned in the earnings call that the updated queso offering also contributed to good comp sales growth for 2017.

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Chipotle increased its restaurant-level operating margins by approximately 4% primarily due to higher sales leverage, decreased marketing and higher labor efficiencies. Ells celebrated Chipotle’s 25th anniversary by announcing new initiatives to “continue perfecting the dining experience” for customers. The restaurant announced it will add between 130 and 150 stores in 2018, with approximately 80% in “proven markets” according to Chief Financial Officer Jack Hartung.

Ells also provided an update on the search for a new CEO, one that has a passion for driving excellence across Chipotle’s business and “enable [the restaurant] to realize full potential.”

Company offers lower comp sales guidance for 2018

Although management announced several initiatives to promote the Chipotle brand, the restaurant expects full-year 2018 comparable sales to decline to the low single digits.

Hartung mentioned in the earnings call that one driver for high comparable sales growth is milder February weather. On the other hand, colder temperatures can reduce comparable sales. Due to the potential for wintry weather, Hartung mentioned that while comparable sales growth will improve during the second half of the year, the expected growth for the first quarter is between 1% and 2%.

Chipotle’s share price tumbled about 5% in after-hours trading as the company reported a lower comparable sales guidance for the upcoming year. Despite this, the company still has strong financial strength, including a Piotroski F-score of a perfect 9 and a strong Altman Z-score of 11.82.

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Disclosure: No positions.

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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