Chipotle Mexican Grill Inc (NYSE: CMG), on Tuesday, reported its financial results for the fourth quarter that came in shy of Street estimates. Shares are down 5.0% in extended hours.
Analyst’s take on Chipotle
Weakness in the recent quarter suggests its recent price hikes to pass higher food costs are starting to alienate customers as they move to cut spending on fears of a recession. Speaking with Yahoo Finance, Morningstar analyst Sean Dunlop said:
My fear is that some consumers will migrate down into fast food as that price gap grows a little bit wider. You may even have some consumers straight out of the category entirely.
Chipotle now forecasts high-single-digit growth in same-store sales in its fiscal Q1. In comparison, analysts had called for a 6.7% increase.
Should you buy Chipotle stock?
Other notable figures in the earnings report include a 37% year-on-year increase in digital sales. Chipotle noted a 5.6% annualised growth in same-store sales this quarter that was well below expectations. Dunlop added:
As we look into 2023, the story pivots from being about margin compression to how long will it take for us to see margin recovery? Even just to pre-pandemic profitability? This earnings report suggests that the pace may be slow.
The analyst currently rates Chipotle stock at “hold” and sees further downside to $1,560 a share.
Chipotle Q4 earnings snapshot
- Net income printed at $223.7 million versus the year-ago $133.5 million
- Per-share earnings also climbed significantly from $4.69 to $8.02
- Adjusted EPS came in at $8.29 as per the earnings press release
- Revenue went up 11% on a year-over-year basis to $2.18 billion
- Consensus was $8.91 of adjusted EPS on $2.23 billion in revenue
Interestingly, Chipotle said in January that it will hire 15,000 workers across North America to prepare for the “burrito season”. According to Morningstar’s Sean Dunlop:
I’d be interested to see how they plan to grow top-line in 2023. They took a 14%-15% pricing in Q4. You can’t do that again. Is it going to be an exciting LTO? Tailored offers through the app? How are you going to continue to get customers in the store in 2023? Because without that it’s going to be very difficult to see margin recapture.
For the year, this food stock is still up nearly 20%.
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