Earnings preview: With the right ingredients in place, Chipotle is in for a buoyant Q2

Chipotle Mexican Grill, Inc. (NYSE: CMG) is thriving on the success of its digital transformation and the positive response to new menu offerings. The fast-casual restaurant chain will be publishing its second-quarter results Tuesday after the market’s close.

Chipotle’s impressive past performance, with earnings exceeding forecasts in each of the trailing four quarters, adds to the prospects of second-quarter results beating Wall Street’s prediction. The consensus earnings estimate for the June quarter is $3.77 per share, which represents a 31% year-over-year increase. Analysts also see an 11% growth in revenues to $1.41 billion.

Recipe for growth

When it comes to revenue generation, Chipotle has several factors in its favor. The uptick in the number of restaurants, combined with the corresponding growth in comparable-store sales, is estimated to have boosted the top-line in the second quarter. There have been consistent efforts by the management to enhance the guest experience. The share of online sales increased steadily in recent years – digital sales more than doubled annually in the first quarter.

The growth in the number of restaurants, combined with strong comparable-store sales, is estimated to have boosted the top-line

Another strong margin growth is in the cards this time, aided by the reduction in operating expenses and costs related to promotional activities. Innovations in menu offerings, like Lifestyle Bowls, and new launches have been successful in the recent quarters, and the trend is expected to continue.

Also see: Chipotle Q1 2019 Earnings Conference Call Transcript

Supported by strong comparable store sales growth, the company’s revenues and earnings rose in double digits in the first quarter, to $1.3 billion and $3.40 per share respectively. Average restaurant sales reached a new high as the number of units rose to 2,504.

Competitors

The market is upbeat on the second-quarter performance of rival fast-food chain MacDonald’s (MCD), which is scheduled to publish the results on July 26 before the opening bell. Earnings are forecast to grow 3% to $2.05 per share. Among others, Yum! Brands (YUM) will be releasing second-quarter earnings on August 1.

Related: McDonald’s Q1 2019 Earnings Conference Call Transcript

Chipotle shares have a consensus hold rating, with an average price target of around $750. After growing steadily over the past several months, the stock reached an all-time high this month. It has gained 70% so far this year and so much in the past twelve months, all along outperforming the industry.

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