Leigh Drogen

About the Author Leigh Drogen

Leigh Drogen is the Founder and CEO of Estimize. Estimize is an open financial estimates platform which facilitates the aggregation of fundamental estimates from independent, buy-side, and sell-side analysts, along with those of industry experts, private investors and students. By sourcing estimates from a diverse community of individuals, Estimize provides both a more accurate and more representative view of expectations compared to sell side only data. Leigh started his career as a quant trader at Geller Capital, a White Plains, NY based fund where he ran strategies that looked at earnings acceleration and analyst estimate revision models, as well as price momentum and several sentiment indicators. Leigh later went on to be the founder of Surfview Capital, a New York based asset management firm that used many of the same strategies as Geller Capital, with a focus on higher beta names on an intermediate term time frame. His educational background includes focus in economics and international relations, specifically war theory. He is a graduate with honors from Hunter College in New York City. You can contact Leigh by emailing him at Leigh@estimize.com

Can Chipotle Mexican Grill, Inc. (CMG) Serve Up a Burrito Sized Earnings Report?

American fast-casual staple Chipotle Mexican Grill, Inc. (NYSE:CMG) is set to report 3rd quarter earnings today after the closing bell. The Estimize consensus is calling for EPS of $4.65 and revenue of $1.22 billion while Wall Street Analysts are not far off, estimating EPS of $4.64 and revenue of $1.21 billion. Chipotle has been growing rapidly and investors are keen to learn whether or not this growth can be sustained.

Same-Store Sales Issues

Same-store sales figures are an incredibly important metric to look at when analyzing the food & beverage industry. The Colorado based “fast casual” chain is expecting same-store sales growth to increase by low single digit percentages by the end of the year. However, figures have been declining the past 3 quarters. To put this change in perspective, the restaurant experienced a monstrous 19.8% gain in same-stores growth in last year’s 3rd quarter. The question remains if whether or not consumers have grown out of the “Mexican” cuisine and are branching out to other options. Several other healthy Chipotle-esque stores have emerged and may be a contributing factor.

Slowing same-store sales growth might also lead to lower profits. The rise in labor and meat costs may be difficult to offset with strong sales numbers. Beef and poultry prices have increased by 5-6% and 2-3% respectively, ultimately leaving restaurants no other choice other than to raise prices. In Chipotle’s case, it does not appear that higher menu prices have affected customer loyalty.

The Triumphant Return of Carnitas!

After an audit, the burrito/burrito bowl empire discovered its primary pork supplier violated company animal treatment guidelines. In response, Chipotle suspended Carnitas availability in all stores. Recently, in late September, the firm brought Carnitas back in 90% of stores after securing a new, UK based supplier. The lack of pork in stores negatively impacted sales by roughly 2%. Though the timeframe of the prominent return of Carnitas has been short, this highly popular item might be able to help sales most likely to be seen in the next quarter. Shares jumped roughly 2% following the announcement.

Can the chain still grow?

Chipotle has faced amazing growth the past 5 years.

CMG Chart

CMG data by YCharts

But as competitors are beginning to imitate the restaurant’s style, there may be a fight for market share. Several opponents have been emphasizing a healthier approach and have been removing artificial ingredients from items. Specifically, Taco Bell is opening two new urban restaurants to emphasize healthier options and rival Chipotle by selling alcohol and appetizers. Chipotle thrives in the urban scene and Taco Bell’s initial move, though not quite aggressive, will peak consumer curiosity. The main challenge for Chipotle is continuing to better position itself compared to its rivals.

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