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Chipotle (CMG) Q3 Earnings Top Estimates, Digital Sales Solid

Chipotle Mexican Grill, Inc. CMG reported third-quarter 2020 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Notably, the top line outpaced the consensus estimate for the eight straight quarter and grew on a year-over-year basis. However, the bottom line declined year over year. Following the results, the company’s shares declined 3.7% in after-hour trading session on Oct 21.

The company’s adjusted earnings of $3.76 per share beat the Zacks Consensus Estimate of $3.44. However, the bottom line declined 1.6% from $3.82 reported in the year-ago quarter.

Revenues & Comparable Restaurant Sales

During the third quarter of 2020, revenues of $1,601.4 million not only surpassed the consensus mark of $1,586 million but also grew 14.1% year over year. The upside can be primarily attributed to robust digital sales along with new restaurant openings. In the quarter under review, Chipotle opened 44 new restaurants and closed three, taking the total restaurant count to 2,710.

Digital sales grew 202.5% year over year to $776.4 million during third-quarter 2020. Digital sales represented 48.8% of sales during the quarter. Notably, collaboration with all major third-party delivery aggregators has increased orders for the company. Also, the addition of Chipotlanes benefitted the company, enhancing guest access and convenience.

Meanwhile, comps in the third quarter increased 8.3%, following a decline of 9.8% in the second quarter of 2020. Notably, the company witnessed solid comps throughout the third quarter of 2020.

Costs, Operating Highlights & Net Income

During the third quarter of 2020, food, beverage and packaging costs, as a percentage of revenues, decreased 90 basis points (bps) year over year to 32.3%. The decrease can be primarily attributed to lower avocado costs, increase in menu prices, and to some extent, reduced salsa usage and waste. However, this was partially offset by rise in beef prices along with fewer sales of high margin beverages.

During the third quarter, restaurant-level operating margin came in at 19.5%, down from 20.8% recorded in the year-ago quarter. The downside was primarily due to increase in expensed related to delivery sales, elevated beef prices and fewer sales of high margin beverages. However, this was partially offset by sales leverage, lower avocado expenses, improved labor efficiency due to digital enhancements made by the restaurants as well as benefits from menu price increases.

Adjusted net income in the reported quarter amounted to $107 million, compared with $108.3 million in the prior-year quarter.

Balance Sheet

A strong balance sheet will help the company tide over the coronavirus-induced crisis. The company had $1.1 billion in cash, restricted cash, and short-term investments as of Sep 30, compared with $934.6 million as of Jun 30, 2020. The company doesn’t have any debt.

Moreover, the company had access to $600 million credit facility to help it navigate through the crisis.

Inventory totaled $25.5 million as of Sep 30, 2020, down from $26.1 million as of Dec 31, 2019. Goodwill, as a percentage of total assets, was 0.4% at the end of third-quarter 2020.

2020 Outlook

Given the volatility and uncertainty regarding the coronavirus impact, the company has withdrawn its 2020 guidance.

Zacks Rank & Key Picks

Chipotle currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Brinker International, Inc. EAT, Chuy's Holdings, Inc. CHUY and Fiesta Restaurant Group, Inc. FRGI. Brinker sports a Zacks Rank #1, while Chuy's Holdings and Fiesta Restaurant carry a Zacks Rank #2 (Buy).

Brinker has a three-five-year earnings per share growth rate of 12.7%.

Chuy's Holdings has a trailing four-quarter earnings surprise of 87.3%, on average.

Fiesta Restaurant’s 2021 earnings are expected to surge 260.7%.

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