Chipotle Misses Earnings Expectations, Operating Margins Collapse

Chipotle is a dead brand. Look at the operating margin erosion for the quarter, coming in at just 14.1% v 28.3%. On top of that, if it weren’t for their new rewards program, essentially giving away food, this quarter would’ve been far worse. Even still, they missed by $1.06 — citing a 14.8% drop in sales. With all of the evidence stacked against them, the board of directors continues to throw money down the drain through share buybacks. To date, they’ve spent upwards of a billion in buy backs and for what? Sharply lower share prices, nonetheless.

Chipotle Mexican Grill misses by $1.06, misses on revs; guides Q4 comps just below estimates; guides FY17 EPS in-line with high single digit comps (405.67 -7.68)

Reports Q3 (Sep) earnings of $0.56 per share, excluding non-recurring items, $1.06 worse than the Capital IQ Consensus of $1.62; revenues fell 14.8% year/year to $1.04 bln vs the $1.09 bln Capital IQ Consensus. The decrease in revenue was driven by a 21.9% decrease in comparable restaurant sales (modestly below estimates), including a reduction of 0.8% on comparable restaurant sales resulting from deferring $11.5 million of revenue related to unredeemed awards from the Chiptopia Summer Rewards program that ran during the third quarter of 2016, partially offset by sales from new restaurant openings.

Comparable restaurant sales declined primarily as a result of a decrease in the number of transactions in our restaurants, and to a lesser extent from a decline in average check.

Restaurant level operating margin was 14.1% in the quarter, a decrease from 28.3% in the third quarter of 2015. The decrease was driven primarily by sales deleveraging (including 0.9% from the Chipotle revenue deferral) and an increase in marketing and promotional spend which totaled 4.8% of revenue for the third quarter of 2016 compared to 2.4% of revenue in the third quarter of 2015.

Sees Q4 comparable restaurant sales declines in the low single-digits vs. ests near -0.5%. New restaurant openings for the full year at or above the high end of the previously-disclosed range of 220 to 235.

Co issues in-line guidance for FY17, sees EPS of $10.00 vs. $9.94 Capital IQ Consensus Estimate.
195 – 210 new restaurant openings

Comparable restaurant sales increases in the high single-digit vs. ests near +7.5%
Restaurant level operating margins of 20%.

Board of Directors has also approved the investment of up to an additional $100 million, exclusive of commissions, to repurchase shares of our common stock. This repurchase authorization, in addition to up to ~$69.2 million available as of September 30, 2016.

The stock has initially jumped to $420, but is now lower by 2% to $397.