If it appears that Chipotle is circling the toilet bowl, following a horrendous year of declining comps and wasteful sharebuybacks, it’s because they are.
The deleterious affects of poisoning your patrons without ever resolving the root cause of the problem is taking a toll on the burrito maker. They’re slashing earnings by nearly 50% for Q4, reducing revenue expectations, but increasing their share buyback program by $100m to total $2.1b per date.
Sees Q4 EPS $0.50-0.58 vs $0.98 Capital IQ Consensus; revs $1.035 bln vs $1.05 bln Capital IQ Consensus; comps -4.8% vs. ests near -3.5%.
Comparable restaurant sales for the quarter decreased 4.8%, which includes the benefit of 0.5% related to previously deferred revenue that was recognized in the fourth quarter. Comparable restaurant sales decreased 20.2% in October 2016, decreased 1.4% in November 2016, and increased 14.7% in December 2016. Sales comparisons are lapping an easier compare due to lower sales levels in November and December 2015.
Operating margin 13-14%. “During the quarter we incurred higher expenses compared to our originally-forecasted amounts in other operating costs, driven by increased promotional spend and costs related to testing television advertising. Our marketing and promotional expenses during the quarter totaled ~4.7% of sales. We also incurred higher food costs compared to our originally-forecasted amounts as a result of increased market costs for avocados.”
I’m not a fan of these buybacks, especially when the core business is woefully impaired like Chipotle. Although comps will be much easier this year, make no mistake, this is still a company in turmoil, with a valuation that isn’t cheap. Bear in mind, revenues aren’t growing anymore, so management is tossing money at common stock that is arguably way too expensive compared to its peers. Based on their industry peer comparisons, $CMG is trading more than 2x on a price to sales basis.
Does CMG deserve to be trading at 3x sales when BWLD trades half that amount?
Over the past year, the company has bought back nearly 2 billion worth of shares, all at higher prices, and for what?
The stock continues lower and management continues to chase the stock, throwing good money after bad. Lunacy.
Shares are trading up early this morning because good news is good and bad news is even better. People believe the year over year sales bump is something to celebrate, when in fact it’s just smoke and mirrors.
My favorite pundit for retail and consumer oriented stocks, Jeff Macke, offers his two cents.
If you enjoy the content at iBankCoin, please follow us on TwitterYou mean like 'If $CMG lit $100m on fire and used the heat to kill the E. coli in their food it might help the stock"? That would be rude. https://t.co/f2gjS0xEhZ
— Jeff Macke (@JeffMacke) January 10, 2017
I used to eat there weekly, if not more often. Now I maybe go once a month, if that. Too many alternatives combined with the chance that I puke for a week. Once I found substitutes, there was no compelling reason to go back.
I’d note that I used to order exclusively online and go pick it up…which meant they had my info and order history. Yet nobody reached out, never sent any coupons. Just had that stupid incentive program that rewarded you for eating 30 burritos in a month to get one free. Bad marketing, bad management.