Chipotle (CMG) is expected to post its third quarter 2022 earnings results Tuesday after market close.
Here’s what Wall Street expects from the California-based company, according to Bloomberg consensus estimates:
Revenue: $2.24 billion expected
Adj. earnings per share (EPS): $9.21 expected
U.S. same-store sales: 7.38% expected
The third quarter ended on September 30, 2022, and comes as the fast-casual restaurant chain bets big on innovation — and while inflation is crimping customer demand.
CEO Brian Niccol says some customers are willing to pay, while others are trading down.
“We serve pretty much all income groups,” he told Yahoo Finance’s All Markets Summit. “We’re fortunate that we’re positioned the way we are with our commitment to food with integrity.”
In June of 2021, the company announced a rise in menu prices to offset the costs of raising its hourly minimum wage to $15. The company announced menu price increases again in December 2021.
Brian Niccol believes the Chipotle brand is seen as an experience, rather than a quick grab-and-go stop.
“Franky, I think the job that the brand has done to position itself in this space of being an elevated food experience, so we get people trading down and I think we also get people trading up, and just in a really unique position, so we’re pretty fortunate, no doubt about it.”
In a recent note, Goldman Sachs called Chipotle “one of the most compelling growth stocks in the industry.” The firm has a Buy rating on the stock and $1,840 12-month price target, emphasizing it was “optimistic on pricing power,” stating in another note that Chipotle has “greater-than-expected price elasticity due to menu price increases that drive traffic deceleration.”
Goldman Sachs also highlighted that it is keeping an eye on how the launch of Chipotle’s limited-time offering (LTO) Garlic Guajillo Steak is performing, suggesting “potential menu fatigue and menu innovation that doesn’t drive SSS [same-store sales] growth.”
The note pointed out that their consumer sentiment analysis “suggests the item (Garlic Guajllo Steak) is generating less social media ‘buzz’ vs other menu innovation launches.”
“We find positive net-sentiment scores for Garlic Gaujillo Steak, generating the 3rd highest penetration of positive posts (36%) and similar to last year’s (3Q) smoked brisket LTO; however, we’d note that while net sentiment is positive, the product also generated the highest proportion of negative comments (34%) across our data set of menu innovation launches.”
Goldman also sees pricing relief on food commodities as an upside for shares of the stock, noting “food cost pressure appears to be easing, [with] room for possible margin upside,” with the cost of avocados and chicken thighs seeing some relief and therefore “less risk that inflationary food costs will drive an earnings/margin miss for CMG in third and fourth quarter of 2022.”
Labor is also in focus for Wall Street, especially following California governor Gavin Newsom passing legislation known as the Fast Food Accountability and Standards (FAST) Recovery Act. Through this, the governor authorized the creation of the Fast Food Council where representatives will set “minimum standards for workers in the industry, including for wages, conditions related to health and safety, security in the workplace, the right to take time off from work for protected purposes and protection from discrimination and harassment.”
Niccol explained the impact of that on Chipotle’s pricing and expansion plans to Yahoo Finance, saying “We pay well beyond $15 an hour in California. So there there is legislation that has the potential to take the hourly wage up to $21, $22 an hour that will put organizations in a place where prices probably have to rise. It’s unfortunate because it also impacts the economic model, and that could impact how many restaurants we open in the future in a state like California which is a shame.”as Brian Sozzi reported.
Goldman Sachs concurred, noting that a company”s California exposure is “a topic of discussion” and the “potential for significant increases in minimum wages in the fast food industry that could impact margins for operators in the state.”
Meanwhile, overall staffing remains a challenge for the food chain, per BTIG analyst Peter Saleh. In a recent note he wrote, “We believe staffing remains very challenging for Chipotle and the entire restaurant industry, as we continue to see evidence of reduced operating hours. That said, we believe expensive overtime hours are moderating from peak levels, but still remain elevated relative to historical levels.” Saleh has a Buy rating on the stock with a price target of $1,825.
Taking a look more broadly, Baird, which has an Outperform rating with a price target of $1543.99, recently polled executives at private restaurant chains about staffing during the month of September. From that, the firm shared key risks for Chipotle that include the “coronavirus pandemic, supply chain concerns, managing rapid growth, competition, input costs, economic factors, health/dietary concerns, and the potential for a rising interest rate environment to weigh on sentiment for growth stocks in the short run.”
Year-to-date shares of Chipotle are down 11.2%.
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at firstname.lastname@example.org.
Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn.
Credit: Source link