Chipotle Mexican Grill, Inc. CMG reported better-than-expected results for the second quarter of 2018. Adjusted earnings of $2.87 topped the Zacks Consensus Estimate of $2.78 by 3.2%. The bottom line also grew 23.7% from the year-ago quarter backed by increased revenues and lower food costs.
Earnings beat and a bullish outlook pertaining to comps growth in 2018must have encouraged investors as shares of Chipotle jumped 6.5% in after-hour trading on Jul 26. In a year’s time, the stock has rallied 27.7%, outperforming the industry’s 1% rise.
Chipotle Mexican Grill, Inc. Price, Consensus and EPS Surprise
Chipotle suffered a negative publicity throughout 2016 due to an issue related to food-borne illnesses that surfaced toward 2015-end. As a safety measure, the company was forced to close several outlets. Ever since then, this fast-casual Mexican chain has been undertaking strategic efforts to restore its economic model as well as regain customer trust.
Let’s have a detailed look at the quarter’s results.
Revenues and Comparable Restaurant Sales
Quarterly revenues of $1.27 billion surpassed the consensus estimate of $1.26 billion by 0.4% and grew 8.3% year over year. The upside is primarily attributable to improvement in comps and restaurant openings. In the quarter under review, Chipotle opened 34 new restaurants and closed or relocated eight restaurants, bringing the total restaurant count to 2,467.
Comps rose 3.3% driven by an increase in average check, including 4% benefit from menu price increase and customers adding queso, partially offset by 1.8% fewer transactions.
Costs, Operating Highlights & Net Income
Food costs, as a percentage of revenues, decreased 150 basis points (bps) to 32.6% owing to the benefit of menu price increases and relief in avocado prices, partially offset by increased beef prices.
General and administrative expenses were 6.7% of total revenues, reflecting an increase of 70 bps year over year, courtesy of rise in headcount and higher bonus expenses. Also, higher expenses from several company initiatives, including digitization of restaurant experience and operational leadership changes led to the rise in G&A expense. Increased legal and corporate restructuring expenses also elevated the costs. However, these increases were partially offset by lower stock-based compensation expenses as a result of forfeitures of stock during the quarter.
Restaurant-level operating margin was 19.7%, up 90 bps from 18.8% in the year-ago quarter. The upside was primarily driven by lower marketing and promotional expenses, and comps growth, partially offset by wage inflation at the crew and manager level.
Net income in the quarter summed $46.9 million, down from $66.7 million in the prior-year quarter.
Six Months Performance
In the first six months of 2018, revenues totaled to $2.4 billion, an increase of 7.9% from the first half of 2017. Comps in the same time period improved 2.8% favored by increased average check and a 4.5% benefit from menu price increases, partially offset by 2.6% fewer comparable restaurant transactions.
Restaurant level operating margin was 19.6% for the six months of 2018, an increase from 18.3% in the first six months of 2017. The improvement was driven by comparable restaurant sales increases combined with lower marketing and promotional spend, partially offset by wage inflation at the crew level. Adjusted earnings in the first half of 2018 came in at $5 per share.
Balance Sheet
Cash and cash equivalents as of Jun 30, 2018 were $225.7 million compared with $184.6 million as of Dec 31, 2017.
Inventory totaled $20.9 million as of Jun 30, 2018, down from $19.9 million as of Dec 31, 2017. Goodwill, as a percentage of total assets, was 1.03% at the end of the second quarter compared with 1.07% at the end of 2017.
2018 Outlook
For 2018, management expects comps to grow in the low to mid-single digits, comparing favorably with the prior guidance of comps growth in low-single digits. The company continues to expect launching 130-150 restaurants.
Effective tax rate is estimated to be roughly 30% (up from the previously guided range of 32.5-33.5%).
Zacks Rank & Peer Releases
Chipotle carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McDonald's MCD reported impressive second-quarter 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Adjusted earnings per share of $1.99 surpassed the consensus mark of $1.92 by 3.6% and increased 15% from the year-ago quarter (12% in constant currencies). The upside reflects stronger operating performance.
Darden DRI reported better-than-expected results in the fourth quarter of fiscal 2018. Adjusted earnings of $1.39 per share outpaced the consensus estimate of $1.35 by 3%. The bottom line also increased 17.8% year over year on the back of higher revenues. Notably, the quarter marked the 15th consecutive earnings beat for the company. Darden’s relentless efforts in improving the basic operating factors of the business — food, service and atmosphere — drove the company’s bottom-line performance.
Noodles & Company NDLS reported mixed results in the second quarter of 2018, wherein earnings missed the Zacks Consensus Estimate while revenues surpassed the same. Adjusted earnings of a penny missed the consensus mark of 3 cents but remained flat with the year-ago quarter’s EPS.
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