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  • Earnings
  • disruptive innovation

Will burrito sales boost the Chipotle share price?

The Chipotle Mexican Grill [CMG] share price has wrapped up some impressive gains so far this summer. Up 19.4% since a low of $1338.13 on 19 May, the stock has gained 12.5% since the start of the year to trade at $1560.49 as of 16 July’s close. Even more impressive has been the Chipotle share prices circa 175% coronavirus pandemic bounce back from March 2020.

Having seen double-digit rallies for the past three years, the recovery since its May lows should assuage fears that investors were full up on the Chipotle share price. Whether the Chipotle share price can continue upwards will depend on upcoming second quarter results, which will cover a period when people were visiting physical restaurants in greater numbers.

12.5%

Chipotle's YTD share price rise

  

What could move the Chipotle share price post-earnings?

Chipotle’s second quarter will give an indication as to how well the restaurant chain has performed after reopening physical stores. When the pandemic hit, the chain was quick to switch to digital. In the first quarter of 2021, digital sales grew 133.9%, coming in at $869.8m and accounting for 50.1% of sales. 

But with more and more people being vaccinated — and more and more restaurants reopening — how physical sales match up against digital will be closely watched.

Writing on The Motley Fool, Parkev Tateco notes that as the economy has reopened, Chipotle’s menu prices have also increased. This is partly down to Chipotle upping its minimum wage to $15 an hour as it looks to attract 20,000 new team members to service 200 new restaurants by the end of 2021. The other reason is inflation.

133.9%

Chipotle's rise of digital sales in Q1

  

Tateco suggests that if Chipotle can still demonstrate strong revenue growth in the second quarter, even as the cost of that side order of guacamole has gone up, then this will “be a strong signal for investors”.

Supersizing revenue is restaurant diners, with Chipotle earning higher margins than takeout from its eat-in customers — i.e. no delivery costs and high margin drink sales. Comparable restaurant sales accelerated 17.2% in the first quarter, with a 22.3% restaurant-level operating margin thanks to menu price increases, although this was offset partially by increased delivery expenses and wage inflation.

For the second quarter, Chipotle says it expects comparable restaurant sales to be in the “high twenties to 30%” range. Analysts at Raymond James upgraded the stock to a strong buy in June, saying it expected any rising costs to be passed to the consumer.  All in all, it looks like customers will happily swallow price increases along with their quesadillas.

 

What happened last quarter?

Chipotle beat analyst expectations in the first quarter, with earnings coming in at $5.36 a share versus an expected $4.89. Revenue was a tasty $1.74bn, up 23% on the previous year and meeting analyst expectations  

$1.74billion

Chipotle's Q1 revenue - a 23% YoY rise

  

Weighing on the results were costs associated with restaurant closures, COVID-19 and corporate restructuring. All things to watch out for in the second-quarter earnings. When those costs are taken into account, Chipotle’s diluted earnings was $4.45 per share.

 

When is Chipotle reporting earnings?

20 July

 

What is Wall Street expecting?

Wall Street is forecasting earnings of $6.49 per share, up from $0.40 per share in the previous year. Revenue is expected to come in at $1.88bn, up 40% from the $1.33bn seen last year.

The Chipotle share price has an average $1,769.72 price target from ana16 July’s closing price. Of the 34 analysts offering recommendations, three rate the Chipotle share price a strong buy and five rate it a buy. The bulk of analysts rate it a hold, with 22 recommendations at this rating.

Disclaimer Past performance is not a reliable indicator of future results.

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