Chipotle Mexican Grill, Inc. (NYSE: CMG) stock is down 9.5 percent Wednesday in pre-market trading, a day after reporting third-quarter numbers that left a bad taste in investors’ mouths.
Chipotle on Tuesday reported earnings of $1.33 per share on revenue of $1.13 billion. Both numbers missed consensus estimates of $1.63 per share and $1.14 billion, respectively. In addition, same-store sales growth of 1 percent fell short of consensus estimates of 1.2 percent growth. The weak growth is particularly concerning given the relatively easy year-over-year comparison.
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Chipotle management said hurricanes cost the restaurant 13 cents in diluted EPS in the third quarter.
Chipotle’s disappointing numbers come on the same day McDonald’s Corp. ( MCD), which was also impacted by the hurricanes, reported 4.1 percent U.S. same-restaurant sales growth in the third quarter.
Investors and analysts had been optimistic that Chipotle’s new queso offering would help boost its sales in the second half of the year. On Tuesday, Chipotle management lowered its full-year same-restaurant sales growth forecast to 6.5 percent. The company had previously called for growth in the high single digits.
“The problem is the Q4 implied guidance of down 1 percent comps,” Wedbush Securities analyst Nick Setyan said on CNBC. “If you can’t even comp positively, even low single digits, in this environment, that begs the question is this a broken business model at this point.”
Setyan says Chipotle’s negative guidance suggests any queso-related boost will only be a temporary phenomenon.
Maxim Group analyst Stephen Anderson says investors shouldn’t be so quick to write off Chipotle’s queso push.
[Read: Chipotle (CMG) Stock: Should You Follow Ackman’s $1.2 Billion Bet?]
“We did our own research and found that 15 percent of customers are ordering the queso,” Anderson said. “So media buzz notwithstanding, that’s something that I think is going to be a successful product in terms of not only sales comp growth but also in terms of margin.”
Looking ahead, Bank of America analyst Gregory Francfort says analyst expectations for Chipotle earnings in 2018 and 2019 are at least 10 percent too high.
“The company continues to trade at an expensive level on aggressive street earnings consensus, and therefore we see risk to the stock going forward,” Francfort wrote to in a downgrade note last week.
Even after a 54 percent decline in the past two years, Chipotle stock still trades at an elevated forward price-earnings ratio of 31.4, well above McDonald’s forward earnings multiple of 23.3.
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Chipotle Mexican Grill, Inc. (CMG) Can’t Find a Winning Recipe originally appeared on usnews.com
