Chipotle Mexican Grill
is poised to serve up another hot earnings report when it discloses its second-quarter results this afternoon.
Investors are optimistic that the company can handily meet or beat earnings expectations and send the stock higher. Already, the shares have gained 51% this year, buoyed by strong financial performance and demand for fast-casual dining.
Analysts expect Chipotle’s earnings to grow by over 30% year-over-year in the second quarter to $12.31 a share, according to FactSet consensus estimates. Projected revenue of $2.53 billion would imply 14% year-over-year growth.
“Chipotle is one of the least debated stocks in our coverage going into 2Q results,” wrote TD Cowen analyst Andrew Charles. Charles has an Outperform rating on the stock, and lists it among one of his top five stock picks.
Chipotle has invested heavily on innovating over the last couple of quarters, which has helped drive sales and keep consumers engaged. The company has launched new menu items, tested ways to automate guacamole production, and announced it was expanding to the Middle East with its first franchised restaurants.
The company is also in the midst of implementing a strategic plan, called Square One, which aims to improve the company’s business fundamentals following the pandemic. The impacts of Square One may start playing out as early as this quarter, analysts say, and help improve both sales and profit.
William Blair analyst Sharon Zackfia predicts second-quarter restaurant-level margin will rise 1.8 percentage points to 27.4%, marking Chipotle’s best margin at the restaurant level since 2015. Margins could also see a boost from slightly lower labor and commodity costs. Zackfia rates the stock Outperform.
Of course, there are risks ahead. Given that expectations are high heading into the report, there is little room for error at tomorrow’s report, wrote Stifel analyst Chris O’Cull in a note to clients. O’Cull rates the stock a Buy. The company is also subject to macroeconomic vicissitudes, which may lead consumers to take a more cautious approach toward spending.
So far, however, Chipotle has benefited from consumers looking to make their budget stretch longer. Instead of paying for a sit-down restaurant, shoppers are turning to more affordable, fast-casual eateries, such as Chipotle.
That means that investors should take Chipotle’s results with a grain of salt—or a side of guac—as they try to ascertain what they could imply for other restaurants as they report earnings over the course of the following weeks.
The company is one of the “creme de la creme this quarter,” O’Cull wrote, alongside
McDonald’s
(MCD) and
Texas Roadhouse
(TXRH). “We would be careful using their results for read-throughs to others reporting in the subsequent weeks.”
Write to Sabrina Escobar at [email protected]
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