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Chipotle (CMG) Q3 Earnings Beat Estimates, Increase Y/Y

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Chipotle Mexican Grill, Inc. CMG reported solid third-quarter 2021 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis.

In spite of reporting solid results, shares of the company fell 0.8% during after-hours trading session on Oct 21. Management stated concerns regarding uncertainties revolving around COVID-19, inflationary and staffing pressures.

Nonetheless, Brian Niccol, chairman and CEO, Chipotle, stated "Our team has proven their ability to be resilient and successfully execute against macro complexities. As a result, I believe we are better positioned to drive sustainable long-term growth than ever before, which makes me excited about what we can accomplish in the years ahead."

Q3 Earnings & Revenue Discussion

Chipotle Mexican Grill, Inc. Price, Consensus and EPS Surprise

Chipotle Mexican Grill, Inc. Price, Consensus and EPS Surprise
Chipotle Mexican Grill, Inc. Price, Consensus and EPS Surprise

Chipotle Mexican Grill, Inc. price-consensus-eps-surprise-chart | Chipotle Mexican Grill, Inc. Quote

During third-quarter 2021, adjusted earnings of $7.02 per share beat the Zacks Consensus Estimate of $6.23 by 12.7%. Moreover, the bottom line surged 86.7% from $3.76 reported in the year-ago quarter.

Quarterly revenues of $1,952.3 million beat the consensus mark of $1,941 million by 0.6%. The top line increased 21.9% on a year-over-year basis. The upside was primarily driven by strength in digital sales, rise in menu prices as well as new restaurant openings. In the quarter under review, Chipotle opened 41 new restaurants (including two relocation), taking the total restaurant count to 2,892.

Digital sales increased 8.6% year over year to $840.4 million during third-quarter 2021. Digital sales contributed 42.8% to sales during the quarter. The company witnessed a rise in order-ahead transactions, owing to enhanced guest access and convenience. This along with Chipotlanes add-ons drove the company’s performance.

During the third quarter, comparable restaurant sales increased 15.1% year over year, following growth of 31.2% (in second-quarter 2021), 17.2% (first-quarter 2021) and 5.7% (fourth-quarter 2020). Consistent strength in digital sales, solid recovery of in-restaurant sales and positive customer reception to new menu items, contributed to the company’s results.

Costs, Operating Highlights & Net Income

During third-quarter 2021, food, beverage and packaging costs, as a percentage of revenues, declined 200 basis points (bps) year over year to 30.3%. The upside can be attributed to benefits from menu price increases. However, this was partially offset by a rise in beef costs and freight.

During the quarter, restaurant-level operating margin came in at 23.5%, up from 19.5% recorded in the year-ago quarter. The uptick was primarily backed by leverage from the comparable restaurant sales growth. However, this was partially offset by wage inflation and costs associated with beef and freight.

Adjusted net income in the reported quarter amounted to $199.8 million compared with $107 million in the prior-year quarter.

Balance Sheet

Chipotle continues to impress investors with a solid financial position. As of Sep 30, the company reported cash, restricted cash and short-term investments worth $1.2 billion (almost flat sequentially). Further, the company reported no debt along with an access to $500-million credit facility.

Inventory totaled $28.5 million as of Sep 30, 2021, compared with $26.4 million as of Dec 31, 2020. Goodwill (as a percentage of total assets) came in at 0.3% at the end of third-quarter 2021.

During the third quarter, the company repurchased $98.7 million of stock at an average price of $1,813. Management approved an additional $100 million (exclusive of commissions) to repurchase shares. As of Sep 30, the company had approximately $209.8 million available for the buyback program.

2021 Outlook

For fourth-quarter 2021, the company expects comps growth in the range of low to mid double digits.

The company expects to open nearly 200 new restaurants in 2021. However, the new openings might face minimal construction and permit delays due to the pandemic. Also, it expects 2021 tax rate in the range of 25-27%.

Zacks Rank & Key Picks

Chipotle currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other top-ranked stocks in the same space include Denny's Corporation DENN, FAT Brands Inc. FAT and Darden Restaurants, Inc. DRI. Denny's sports a Zacks Rank #1, while FAT Brands and Darden carry a Zacks rank #2.

Denny's has a three-five year earnings per share growth rate of 9%.

FAT Brands 2022 earnings are expected to surge 206.7%.

Darden has a trailing four-quarter earnings surprise of 15.3%, on average.


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