Key Takeaways

  • CMG reported adjusted EPS of $3.08 vs. an expected $2.88
  • Same-store sales growth, although lower than last year, beat expectations.
  • Revenue met expectations as digital sales increased 81% to help offset dining-room closures.

What Happened

Chipotle reported higher-than-expected earnings on 4/21/20 for Q1 2020, despite the substantial headwinds of the COVID-19 pandemic. Its same-store sales also slightly topped expectations. It owes this success, as well as the fact that its overall revenue matched expectations, to the 80.8% increase in digital sales in Q1. This shows that CMG is able to adapt well to the enormous economic shock caused by the pandemic. Shares were up 2.3% in aftermarket trading, at time of writing.

(Below is Investopedia's original earnings preview, published 4/14/20)

What to Look for

Chipotle Mexican Grill Inc. (CMG) has made a strong comeback after suffering food-poisoning outbreaks at many of its restaurants between 2015 and 2018 that badly hurt sales. Now, the coronavirus pandemic means the burrito chain is facing another health crisis, though not because of its food. The restaurant industry is reeling due to government-ordered shelter-in-place measures and other social-distancing steps intended to slow the spread of COVID-19. Investors will be looking for signs of any initial damage when Chipotle reports earnings on April 21, 2020 for Q1 2020. Analysts expect a 15.1 percent drop in adjusted earnings per share (EPS), slowing corporate revenue growth and a sharp decline in the pace of same-store sales growth. These numbers may give only a glimpse of the damage because Chipotle didn't stop dine-in service until March, the third month of the quarter.

Investors will focus especially intently on Chipotle's same store sales, which have been robust until now and are a key measure of the chain's underlying growth. Chipotle has cushioned the blow to that metric by promoting free delivery on orders over $10 through the end of April.

Chipotle shares have modestly outperformed the broader market, posting a total return of -3.2% over the past 12 months compared to the S&P 500's total return of -5.9%. All figures are as of April 13, 2020.

One Year Total Return for S&P 500 and Chipotle
Source: TradingView.

The company's shares have outpaced the overall market for much of the past year, propelled by earnings surprises and robust growth. The company beat earnings expectations by 4.0% for Q4 2019. Adjusted EPS and revenue for the quarter grew 66.1% and 17.6% year-over-year (YOY), respectively. It was the restaurant chain's strongest revenue growth since Q1 2017.

Following the Q4 report, Chipotle's shares initially fell before beginning a rally that lasted through the first couple weeks of February. But the stock then crashed along with the rest of the market amid mounting fears over the spread of COVID-19. It has recovered considerably since March 18 and is up about 68% since then as of early Tuesday trading.

As indicated, analysts are expecting Q1 2020 adjusted EPS to decline sharply compared to the same quarter a year ago as revenue growth slows to 8.7%, the smallest YOY increase since Q3 2018. These estimates should be expected to have a wider margin of error than normal considering the heightened economic uncertainty.

Chipotle Key Metrics
  Estimate for Q1 2020 (FY) Actual for Q1 2019 (FY) Actual for Q1 2018 (FY)
Adjusted Earnings Per Share ($) 2.88 3.40 2.13
Revenue ($B) 1.4 1.3 1.1
Same-Store Sales Growth YOY (%) 3.2 9.9 2.2

Source: Visible Alpha

As stated, the key metric investors may look at is Chipotle's same-store sales growth. Same-store sales, or comparable-store sales, is a key financial metric for restaurants and retail companies. It provides a measure of the total sales attributable to stores that have been in operation for a year or longer, or in Chipotle's case, stores in operation for at least 13 full calendar months.

Chipotle posted YOY same-store sales growth of 13.4% for Q4 2019, more than double the growth rate of Q4 2018 and the eighth consecutive quarter of accelerating growth. But analysts are expecting a sharp slowdown as a result of less foot traffic in restaurants due to government-ordered shelter-in-place policies and social distancing in general. Forecasts peg same-store sales growth at 3.2% in Q1 2020, the slowest rate of growth since Q1 2018.

Chipotle is fortunate that revenue is still growing, which is partly due to the fact that it is still able to fulfill food orders for delivery. But if the lockdowns remain in place for several months and the economic fallout reduces household budgets enough, Chipotle and the rest of the restaurant industry could see unprecedented declines in sales.