Goldman Warns Of Downside Bias In Chipotle Heading Into Q2 Earnings

Chipotle Mexican Grill, Inc. CMG is unlikely to report a meaningful improvement in its top-line in 2Q, Goldman Sachs’ Karen Holthouse said in a report. She maintained a Neutral rating on the company, with a price target of $490.

Even post the food safety concerns, Chipotle’s top-line is unlikely to have improved meaningfully, and there seems to be “risk biased to the downside.” Analyst Karen Holthouse added that the bigger focus could be on the quarter-to-date trend and the impact on the company’s performance from the launch of Chiptopia and/or the commencement of the national rollout of chorizo.

Impact Of Initiatives

“We are fairly cautious on Chiptopia given how narrowly it targets the most frequent users; however, we see the larger challenges as gauging the sustainability of any improvement,” Holthouse commented.

Limited data on individual customers would make it difficult to gauge whether there have been any initial benefits of Chorizo publicity versus “sustainable benefits on the back of changes in behavior, the accretion from Chiptopia changing behavior, and/or a baseline improvement as we are farther from the initial food safety incident,” the analyst stated.

Cost Outlook Not Encouraging

There is risk to the consensus expectations for 2H, due to a slower-than-expected improvement in Chipotle’s top-line as well as higher-than-anticipated marketing and promotional expenses, Holthouse noted.

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