Chipotle's Still Sizzling Ahead of Earnings
I don't deny that Chipotle has built itself into a leading fast-casual restaurant that's posting strong growth and above-average margins. To the extent that the company now deserves a P/E that is almost 3-times that of McDonald's
I will credit Chipotle management for growing same-store sales and managing costs. On Thursday, when Chipotle reports third-quarter results, the company will get a chance to convince the Street that the valuation is deserved. Analysts will be looking for earnings of $2.78 per share on revenue of $820.28 million, which would represent earnings and revenue growth of 22% and 17%, respectively.
Given that Chipotle has consistently posted double-digit profit and revenue growth, the Street is not expecting the company to divert much from its historical performance. What I am interested in (among other things) is how the company continues deal with the rising costs of chicken and beef from suppliers like Tyson
If anything has kept the stock sizzling, it's been Chipotle's strong restaurant-level margins, which registered an astounding 27.6% in the July quarter. While that number is significantly higher than both McDonald's and Yum! Brands, I did notice a 160-basis point decrease. Chipotle has called that a "trivial" decrease. But let's not forget that it was preceded by 110-basis point decrease in the April quarter.
Now, I don't want to make too much this, but should restaurant-level margins decrease again on Thursday, it then becomes a trend. My issue here is that, while Chipotle's overall profit margins still remain high relative to its quick-service peers like Panera