We expect Chipotle Mexican Grill, Inc. CMG to beat expectations when it reports first quarter 2015 results on Apr 21, after the markets close. Last quarter, the company posted a positive earnings surprise of 1.32%.
The company has beaten earnings estimates in three of the trailing four quarters and currently has an average positive earnings surprise of 4.14%. Let's see what is in store this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Chipotle Mexican Grill is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.34%. This is meaningful and a leading indicator of a likely earnings surprise.
Zacks Rank: Chipotle Mexican Grill has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Chipotle Mexican Grill’s Zacks Rank #2 and +3.34% ESP makes us confident of an earnings beat.
What's Driving the Better-Than-Expected Earnings?
Chipotle’s revenues and earnings have been increasing consistently year over year. The company has been witnessing a fairly stable traffic trend and posting strong comps over the past few quarters. In fact, the restaurant chain posted comps growth of 16.8% in 2014, a substantial increase from 5.6% recorded in 2013. The upside was driven by improved guest traffic and better operational efficiency.
Chipotle has been a consistent growth story in the fast casual restaurant sector with its stock price climbing 23% over the last one year. Menu innovation has been the key to Chipotle’s traffic growth. The company’s move toward more organic, sustainably grown or raised, non-genetically modified organisms, and lower carbohydrate ingredients reflects its focus on meeting consumer preference. In fact, the company suspended purchases from one of its suppliers in Jan 2015, as the supplier did not conform to the standards set for the size and condition of the housing offered to some of the pigs. Although this led to pork being taken off the menu at many of its restaurants, it improved Chipotle’s reputation with diners. We expect such efforts to continue to reap benefits going forward.
However, the increase in food costs is likely to be a headwind. Also, menu price increase could hurt traffic, going forward.
Other Stocks to Consider
Chipotle Mexican Grill is not the only firm looking up this earnings season. We also anticipate earnings beat from three other companies in the restaurant industry:
BJ's Restaurants, Inc. BJRI has an Earnings ESP of +3.57% and a Zacks Rank #1 (Strong Buy).
Jack in the Box Inc. JACK has an Earnings ESP of +3.03% and a Zacks Rank #1.
Sonic Corp. SONC has an Earnings ESP of +2.78% and a Zacks Rank #1.
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