Analysts are striking an optimistic note ahead of Chipotle Mexican Grill’s third quarter earnings scheduled to be announced on Tuesday, expecting the company to report solid revenue and earnings growth.
The earnings will be closely watched owing to it being the restaurant chain’s first earnings release after the departure of its star-CEO Brian Niccol who left in August to lead Starbucks, with the news of his departure triggering a 14% decline in CMG’s share price at the time.
However since August, even in a post-Niccol era, the stock has recovered and continued to surge, and the earnings are expected to keep the momentum going.
“Chipotle appears a compelling earnings-beat candidate,” Zacks Investment Research said.
The Street is projecting Chipotle will report earnings of 25 cents a share, a rise of 8.7% year-on-year, on a $2.8 billion in revenue which is higher by 13.9% from the same quarter a year ago.
Same-store sales are expected to rise by 6.3% from the year-ago quarter signalling consistent consumer interest.
Return of Smoked Brisket to add to strong sales
Brian Niccol’s departure from the fast-casual burrito chain was significant as during his 6-year tenure, he successfully managed to turn around the chain that was suffering from a slump after losing confidence of consumers following a string of food-borne illnesses.
Under his watch, the company’s sales doubled and stock price increased about 800%. The stock had fallen as much as 14% on news of his departure but has since recovered the losses.
The Street’s confidence in Chipotle comes from its strong market positioning in the fast-casual sector, innovative technological capabilities, and efficient supply chain management.
These elements have cemented Chipotle’s appeal across income levels, according to UBS analyst Dennis Geiger who said in a Barron’s report,
We continue to view CMG as well-positioned for traffic outperformance & margin gains through ’24 & ‘25 even against a tough macro.
This quarter’s performance will likely benefit from the return of the Smoked Brisket, a fan-favorite item that has historically boosted sales.
Chipotle has not been immune to industry-wide challenges, including higher food and labor costs.
While some analysts view rising expenses as a potential challenge for margins, Geiger believes Chipotle’s operational efficiencies could help buffer these costs.
As the economy stabilizes, Chipotle may also consider strategic price increases to offset these pressures.
Boatwright’s investor address to guide stock’s post-earnings reaction
This earnings call will mark interim CEO Scott Boatwright’s first opportunity to present the company’s vision to investors.
Having been with Chipotle for seven years, Boatwright is seen by some as a potential long-term candidate for the CEO role.
Stifel analyst Chris O’Cull commented on Boatwright’s influence, writing, “This quarter will be the first opportunity for interim CEO Scott Boatwright to directly address investors, and we believe his ability to inspire confidence in the company’s outlook will factor into the stock’s post-earnings reaction.”
Investors and analysts alike are keen to hear Boatwright’s perspective on sustaining growth and strategic positioning as Chipotle enters a new phase of leadership.
Chipotle’s stock has performed strongly this year, up 33%, with a recent close of 2% higher at $60.60.
According to Barron’s, following an August recommendation from the publication amid a two-month stock slump and subsequent 50-for-1 split, shares have since gained an additional 14%, underscoring the market’s confidence in Chipotle’s outlook.
Analysts expect the company to remain resilient post-earnings, fueled by robust sales and an expanding loyal customer base.
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