Chipotle Addresses Negative Feedback On Portions, 9 Analysts Still Cut Forecasts After Better-Than-Expected Earnings Results

Shares of Chipotle Mexican Grill, Inc. CMG tanked in early trading on Thursday, after the company reported its second-quarter results.

The results came amid an exciting earnings season. Here are some key analyst takeaways.

• Goldman Sachs analyst Christine Cho reiterated a Buy rating, while slashing the price target from $74 to $67.
• TD Cowen analyst Andrew Charles maintained a Buy rating, while cutting the price target from $72 to $65.
• KeyBanc analyst Eric Gonzalez reaffirmed an Overweight rating, while reducing the price target from $68 to $66.
• Wedbush analyst Nick Setyan reiterated a Neutral rating, while slashing the price target from $64 to $54.
• Piper Sandler analyst Brian Mullan maintained a Neutral rating, while cutting the price target from $61 to $56.
• Stephens analyst Jim Salera reaffirmed an Equal-Weight rating, while reducing the price target from $64 to $61.
• Oppenheimer analyst Brian Bittner reiterated an Outperform rating, while slashing the price target from $70 to $65.
• Truist analyst Jake Bartlett maintained a Buy rating, while cutting the price target from $74 to $69.
• Stifel analyst Chris O’Cull reaffirmed a Buy rating and price target of $70.

Check out other analyst stock ratings.

Goldman Sachs: Chipotle Mexican Grill reported adjusted earnings of 34 cents per share, beating consensus of 31 cents per share, driven by stronger traffic, Cho said in a note. The company's total revenues of $2.97 billion also came in ahead, "despite new unit growth falling short of estimates," he added.

Despite better-than-expected revenues, "management opted to hold annual guidance unchanged for SSSG (at MSD-HSD), noting sequential deceleration during the quarter and the underlying trend in 3QTD in the c.6% range," the analyst stated.

TD Cowen: The company maintained its full-year guidance, despite a challenging restaurant industry sales backdrop, Charles said.

"We appreciate mgmt’s attention to improving publicity surrounding portion sizes via operational changes at affected restaurants (10% of fleet) and margin investment to ensure more consistent portioning," the analyst wrote. "We believe the issue can resolve and that 7% full year comps will be achieved, aided by demonstrable progress with 1H24 speed of service," he added.

KeyBanc Capital Markets: Chipotle Mexican Grill's second-quarter same-store sales growth of 11.1% came in higher than consensus of 9.2% and included an 8.7% increase in traffic and a 2.4% increase in average check, Gonzalez.

"However, SSS growth normalized to around 6% in June and July, and the Company sees some NT margin pressure from dairy/avocados, a mix shift from promotional items (e.g., from Chicken al Pastor to Smoked Brisket) this fall, and investments to ensure portion sizes remain generous/uniform across the system (40-60 bps drag)," the analyst wrote.

Wedbush: Menu pricing was around 3.3%, with 8.7% transaction growth, partially offset by a negative mix, Setyan said. The company's underlying margins of 28.9% was above consensus of 28.5%, "driven by sales leverage," he added.

While Chipotle Mexican Grill should be able to sustain market share gains amid a more challenging macro backdrop for restaurants, "commentary indicated that despite a very healthy April, trends slowed as the quarter progressed," the analyst wrote.

Piper Sandler: "Notably, transaction growth was +8.7% in the quarter; which is remarkable in any environment, not to mention in the difficult one the industry is operating in right now," Mullan wrote in a note. He added, however, that same-store sales decelerated in June and July looks similar so far, "which we note is below the pre-print consensus SSS estimate of +7.2% for 3Q24e."

"While we think the sales deceleration was largely expected by the buy-side investment community, it was the margin commentary on the call that likely comes as a bigger surprise; and which should result in some downward estimate revisions exiting the quarter," the analyst further stated.

Stephens: Chipotle reported better-than-expected results "across almost all major line items driven by strong traffic of +8.7% (while showing increased frequency among all income cohorts)," Salera said. "The one exception came from a unit miss vs. consensus," he added.

The company outperformed the restaurant industry, driven by industry-leading traffic growth, the analyst stated. Although Chipotle has among the "clearest lines of sight (in restaurants) to delivering positive traffic for FY24," this belief was impacted by management's commentary around near-term pressure on margins, he further said.

Oppenheimer: "Since mid-June, CMG is down -24.5% (vs. S&P -1.1%) as the market braced for moderating SSS in 2H24 vs. peak double-digit trends experienced in 2Q24," Bittner wrote. While comps in the third quarter have normalized to around 6%, "this includes best-in-class traffic and remains close to consensus," he added.

Management guided to restaurant margins below Street forecasts over the next few quarters, the analyst stated. "Our analysis following our call with CMG suggests this margin reset could enable an improving setup for shares moving forward, particularly considering the stock’s recent pullback," he further wrote.

Truist Securities: Chipotle's traffic growth of 8.7% was the highest since 2021, demonstrating the company's strong positioning in a challenging environment, Bartlett said. "While traffic decelerated in June (+3.0-3.5%), trends remain stable in July with sales drivers ahead," he added.

The implied margin guidance for the back half of the year is lower than expected "but largely by choice as management focuses on traffic," the analyst stated. "CMG remains well positioned to sustain strong sales growth, despite recent SSS deceleration," he further wrote.

Stifel: Chipotle's traffic performance is likely to improve sequentially, "given the disruptions to the start of 3Q and with the popular Smoked Brisket LTO launching later this quarter," O’Cull said. He added, however, that margin expectations were reset lower due to "a higher cost outlook and a low probability of additional pricing."

The analyst reduced the earnings estimates for 2024 and 2025 from $1.12 per share to $1.10 per share and from $1.32 per share to $1.27 per share, respectively.

CMG Price Action: Shares of Chipotle Mexican Grill had declined by 2.14% to $50.67 at the time of publication on Thursday.

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