Strong Top Line & Margins To Aid Chipotle's (CMG) Q1 Earnings

Chipotle Mexican Grill, Inc. (NYSE:CMG) is scheduled to report first-quarter 2019 results on Apr 24, after the market closes.

The company’s increased focus on augmenting customer experience by introducing food-safety programs, various sales-building initiatives and greater digital innovation are expected to have resulted in revenue growth in the first quarter. Further, lower marketing and promotional expenses are likely to have aided margins in the to-be-reported quarter.

Chipotle’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 18.3%. Backed by an impressive earnings trend, shares of the company have gained 111.1% over the past year, outperforming the industry’s 19.5% rally.

Let us see how the company’s top and bottom lines shaped up in the first quarter.

Top-Line Momentum to Continue

Chipotle has been shifting the strategy from giveaways, discounts and rewards to new menu items, operational excellence, enhancement of guest experience, technology-driven convenience and more aggressive brand marketing. The rollout of queso substantially aided sales in 2018. Notably, the company’s robust marketing activities, including a combination of brand-building efforts as well as transaction-driving promotions and advertising, are resulting in a steady inflow of new customers.

In 2018, revenues totaled $4.9 billion, marking an increase of 8.7% from 2017. Comps in the same period improved 4%, favored by increased average check and 4% benefit from menu price increases, partially offset by 0.8% fewer comparable restaurant transactions.

Given the company’s sales-building efforts, we believe that the upside trend is likely to have continued in the first quarter. The Zacks Consensus Estimate pegs first-quarter sales at $1.26 billion, marking a 9.7% increase from the year-ago quarter. Further, comps in the quarter under review are expected to rise 7.2%, comparing favorably with the year-ago quarter’s 2.2% growth.

Earnings to Gain From High Margins

In 2018, Chipotle’s restaurant-level operating margin was 18.7%, marking an increase from 16.9% in 2017. This improvement was driven by increases in comparable restaurant sales combined with lower marketing and promotional spending.

We believe that the trend has continued in the first quarter as well and benefitted earnings in the quarter. The consensus estimate pegs the to-be-reported quarter’s earnings at $2.90, reflecting a 36.2% year-over-year increase.

Quantitative Model Prediction

Our proven model doesn’t show that Chipotle has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat in the first quarter. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Chipotle has an Earnings ESP of -0.89%. Notably, Earnings ESP represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

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

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Chipotle Mexican Grill, Inc. Price and EPS Surprise

Stocks to Consider

Here are a few stocks from the Restaurant space that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the first quarter.

Bloomin’ Brands (NASDAQ:BLMN) presently carries a Zacks Rank #3 and has an Earnings ESP of +4.17%. The company is scheduled to report quarterly numbers on Apr 25.

Yum! Brands (NYSE:YUM) has an Earnings ESP of +3.11% and a Zacks Rank #2. The company is scheduled to report quarterly numbers on May 1.

Dunkin’ Brands (NASDAQ:DNKN) has an Earnings ESP of +0.27% and a Zacks Rank #3.

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