Chipotle is Back: Company Crushes Estimates; Shares Tempered by ‘Unauthorized Activity’ on Payment Processing

The ecoli scare appears to be behind them. But a new problem arises, this time with ‘unauthorized activity’ on their payment processing systems. The great news of a sharp resurgence in their core business is being marred by this disclosure of chicanery. The dates in question are March 24-April 17 — where customer cards might’ve been compromised.

Hacking aside, it appears the company has turned the corner, on both demand and input costs.

Reports Q1 (Mar) earnings of $1.60 per share, $0.31 better than the Capital IQ Consensus of $1.29; revenues rose 28.1% year/year to $1.07 bln vs the $1.05 bln Capital IQ Consensus. The increase in revenue was driven by comparable restaurant sales increases and to a lesser extent by new restaurant openings. Comparable restaurant sales increased due to improved customer traffic, reduced promotional activity, and increased average check.

Comparable restaurant sales increased 17.8% vs. ests. near +15.5%, which included a benefit of 0.6% due to previously deferred revenue related to Chiptopia recognized during the quarter. We opened 57 new restaurants during the quarter and closed 15 ShopHouse Southeast Asian Kitchen restaurants and one Chipotle restaurant. Our total restaurant count as of the end of the quarter was 2,291.

Food costs were 33.8% of revenue, a decrease of 150 basis points compared to the first quarter of 2016. The decrease was primarily driven by lower food waste and testing costs, and bringing the preparation of lettuce and bell peppers back to our restaurants. This decrease was partially offset by higher avocado prices.

Restaurant level operating margin was 17.7% in the quarter, an increase from 6.8% in the first quarter of 2016. The increase was primarily driven by sales leverage, lower marketing and promotional spend, efficiencies in labor, and lower food costs. The restaurant level operating margin also benefited by 0.15% from sales leverage related to recognizing revenue previously deferred from Chiptopia, slightly offset by free catering discounts for Chiptopia. General and administrative expenses were 6.5% of revenue for the first quarter of 2017, a decrease of 90 basis points from the first quarter of 2016.

Reaffirms: For the full year of 2017, management is targeting the following: Comparable restaurant sales increases in the high-single digits 195 – 210 new restaurant openings An estimated effective full year tax rate of approximately 39.0%

Shares were north of $500 until the unauthorized activity was disclosed. In my estimation, customers are numb to credit card intrusions and this dip is a reason to buy.

The stock is up around 1% in the after hours. Since the shares have been on a tear as of late, it wouldn’t surprise me to see people take profits here until more information is available.