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Why Is Chipotle (CMG) Up 2.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Chipotle Mexican Grill (CMG). Shares have added about 2.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Chipotle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Chipotle Q3 Earnings Beat Estimates, Revenues Lag

Chipotle reported third-quarter 2022 results, wherein earnings surpassed the Zacks Consensus Estimate, but revenues missed the same. However, the top and the bottom lines increased on a year-over-year basis.

Q3 Earnings & Revenue Discussion

During third-quarter 2022, adjusted earnings of $9.51 per share beat the Zacks Consensus Estimate of $9.11 by 4.4%. The bottom line improved 35.5% from the $7.02 reported in the year-ago quarter.

Quarterly revenues of $2,220.2 million missed the consensus mark of $2,233 million. The top line increased 13.7% on a year-over-year basis. The upside can primarily be attributed to robust comparable restaurant sales and new restaurant openings. In the quarter under review, Chipotle opened 43 new restaurants.

Digital sales contributed 37.2% of total food and beverage revenues. During the third quarter, comparable restaurant sales increased 7.6% year over year, following growth of 10.1% (in second-quarter 2022), 9% (in first-quarter 2022), 15.2% (in fourth-quarter 2021), 15.1% (third-quarter 2021), 31.2% (second-quarter 2021), 17.2% (first-quarter 2021) and 5.7% (fourth-quarter 2020).

Costs, Operating Highlights & Net Income

During third-quarter 2022, food, beverage and packaging costs, as a percentage of revenues, came in at 29.8%, down 50 bps year over year. In the third quarter of 2022, the benefit of menu price increases was overshadowed by inflation across the menu, mainly due to higher costs for dairy, packaging, tortillas and avocados.

During the reported quarter, the restaurant-level operating margin came in at 25.3%, up from 23.5% in the year-ago quarter. The increase was primarily due to the benefit of menu price increases and lower delivery fees. But it was overshadowed by higher food costs and increases in hourly wages.

Adjusted net income in the reported quarter amounted to $265.8 million compared with $199.8 million in the prior-year quarter.

Balance Sheet

As of Sep 30, the company reported cash and cash equivalent of $366.6 million compared with $815.4 million as of Dec 31, 2021.

Inventory totaled $33.8 million as of Sep 30, 2022, compared with $32.8 million as of Dec 31, 2021. Goodwill (as a percentage of total assets) came in at 0.3% at the end of the third quarter of 2022.

During the third quarter, the company repurchased $106.9 million worth of stocks at an average price of $1,437.87.

Outlook

For the fourth quarter, the company expects comps growth in the range of mid to high-single-digit.

In 2022, the company expects to open 235 to 250 new restaurants. It expects a 2022 tax rate in the range of 25-27%.

In 2023, the company expects to open 255 to 285 new restaurants.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Chipotle has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Chipotle has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Chipotle is part of the Zacks Retail - Restaurants industry. Over the past month, Domino's Pizza (DPZ), a stock from the same industry, has gained 21.7%. The company reported its results for the quarter ended September 2022 more than a month ago.

Domino's Pizza reported revenues of $1.07 billion in the last reported quarter, representing a year-over-year change of +7.1%. EPS of $2.79 for the same period compares with $3.24 a year ago.

For the current quarter, Domino's Pizza is expected to post earnings of $3.95 per share, indicating a change of -7.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -1% over the last 30 days.

Domino's Pizza has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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