Chipotle Still Not Appetizing Despite Some Improving Trends

Chipotle Mexican Grill, Inc. CMG reported its Q4:16 results in line with the pre-announcement, with a 4.8 percent decline in same store sales and restaurant level margin (RLM) of 13.5 percent.

Jefferies’ Andy Barish maintains an Underperform rating on the company, with a price target of $300.

Same-Store Sales

Chipotle Mexican Grill’s January same store sales of 24.6 percent represent two-year trend improvement, although still negative. The analyst, however, expects same store sales compares to remain easy through the remainder of Q1, despite the absence of aggressive food promotions and giveaways.

The company did not include its earlier “stretch” guidance for 2017 of restaurant level margin of 20 percent and EPS of $10 in its report.

Barish mentioned that the Q4 same-store sales reflected negative traffic, although the year ago comparisons in November and December eased meaningfully.

In addition, the analyst expects Chipotle Mexican Grill’s better sales leverage to offset inflationary pressures.

Looking Ahead

Going forward, the company’s cost of goods sold (COGS) is expected in the low 34 percent range in 2017, “with no change in food inflation and anticipated savings from supply chain negotiations and improved waste management,” Barish stated.

The analyst expects labor inflation at 4–5 percent, without any offset from price, although improved sales leverage is likely to help.

Marketing and promo costs are expected to improve to 3 percent of sales in 2017, as compared to 4 percent in 2016, “with less promos, while increased stock comp and the resumption of bonus payouts should bring G&A to about $300 million,” Barish added.

At last check, Chipotle was down 3.09 percent on the day at $409.96.