Chipotle's 'Noisy' Q3: 5 Takeaways From The Conference Call

After Chipotle Mexican Grill, Inc. CMG's "noisy" third-quarter results, Canaccord Genuity shared five takeaways from the conference call.

Canaccord maintained its Hold on Chipotle and lowered its price target from $400 to $325.

At the time of writing, Chipotle shares were plunging 14.70 percent to $276.76.

Analyst Lynne Collier delved into key takeaways from Chipotle's quarter-to-date comp trends and the impact of the addition of queso to the chain's menus. 

1. Comps growth is trending 2-3 percent in the quarter-to-date period, excluding Chiptopia. Chipotle said it expects the run rate to be similar through the fourth quarter.

2. The company estimates queso and advertising to have added 4-5 percent to the comps in October. The lift comes on the back of a higher average check, as 15 percent of guests are adding queso.

3. Chipotle is working on new menu items, such as frozen margaritas, desserts, salad greens and dressings, along with a redesigned beverage program.

4. Chipotle is contemplating a 5-percent price hike in 900 restaurants, mostly across the Texas and the Midwest.

5. The company is planning to update its mobile app Nov. 6, incorporating new capabilities to enhance guest experience and the speed of services.

Chipotle reported third quarter adjusted earnings per share of $1.33, well below its estimate of $2.06 and the consensus of $1.62, Collier said. (See Collier's track record here.)

Comps rose 1 percent, also below the Street forecast of 1.2 percent growth, the analyst said. This came after a 21.9 percent comp-decline one year ago.

Canaccord projects that recent hurricanes have negatively impacted Chipotle comps by 50 basis points. Restaurant-level margins of 16.1 percent trailed Canaccord's estimate of 18.5 percent, as cost of goods sold, labor and other operating lines all exceeded the firm's expectations.

On the outlook, Chipotle lowered its comp outlook for 2017 from high-single-digit growth to 6.5 percent and its new restaurant opening target to slightly below the low end of its previous target. An acceleration of unit growth is possible in 2019/2020, according to Canaccord.

The research firm lowered its earnings per share estimate for 2017 from $7.96 to $6.74, citing the downside in Q3 and reduced expectations for the fourth quarter.

Related Links:

Let's Cut To The Cheese: After Sluggish Q3, Chipotle Still A 'Show Me' Story 

Chipotle Fails To Live Up To Even The Lowest Of Expectations