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Category: Stock Market and Chipotle
Date: 22 April 2020 Stock Price: $786.69 We take a look at the 1st quarter earnings report of their 2020 fiscal year of Chipotle, the mexican grill food franchise group with over 2500 restaurants across the globe. Food and takeaway companies have taken a significant hit due to Covid-19 lockdowns. So has this started to filter through to Chipotle's earnings yet?
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About Chipotle
Chipotle Mexican Grill, Inc. (NYSE: CMG) is cultivating a better world by serving responsibly sourced, classically-cooked, real food with wholesome ingredients without artificial colors, flavors or preservatives. Chipotle had approximately 2,500 restaurants as of June 30, 2019, in the United States, Canada, the United Kingdom, France and Germany and is the only restaurant company of its size that owns and operates all its restaurants. With more than 80,000 employees passionate about providing a great guest experience, Chipotle is a longtime leader and innovator in the food industry. Chipotle is committed to making its food more accessible to everyone while continuing to be a brand with a demonstrated purpose as it leads the way in digital, technology and sustainable business practices. Steve Ells, founder and executive chairman, first opened Chipotle with a single restaurant in Denver, Colorado in 1993.
Overview of Chipotle's 1st quarter 2020 earnings report
The data below refers to the numbers of the latest quarter (unless specified otherwise)
- Revenue: $1.410 billion (up from $1.308 billion for the same quarter of the previous year)
- Revenue increased by 7.8% over the last 12 months
- Total operating expenses: $1.339 billion (up from $1.198 billion for the same quarter of the previous year)
- Total operating expenses increased by 11.7% over the last 12 months
- Net income: $76.388 million (down from $88.132 million for the same quarter of the previous year)
- Diluted earnings per share: $2.70 (down from $3.13 for the same quarter of the previous year)
- Weighted average shares outstanding-diluted: 28.323 million (up from 28.118 million for the same quarter of the previous year)
- Cash and equivalents: $500.315 million
- Cash and cash equivalents per share: $17.65
- Cash and cash equivalents makes up 9.61% of the Chipotle's total assets
- Cash and cash equivalents makes up 2.24% of Chipotle's current market capital
- Accounts and notes receivable: $63.461 million
- Accounts and notes receivable makes up 1.2% of the group's total assets
- Stockholders equity: $1.672 billion
- Stockholders equity per share in Chipotle: $59.4
- Chipotle is trading at 13.24 times its stockholders equity per share, which is outside the expected range of between 2 and 4 times that most firms tend to trade at.
- For perspective the S&P500 is trading at a price to book value of 3.34. Read more about the S&P500 here
- Cash generated from operations: $182.871 million
- Cash generated from operations per share: $6.45
Chipotle's management commentary on their 1st quarter 2020 earnings
COVID-19 and Liquidity Update:
Chipotle remains focused on the safety and well-being of our employees, guests, and our food as we navigate the challenges presented by COVID-19. We are dedicated to keeping our restaurants stocked with gloves, hand sanitizers, masks, and a tamper evident packaging seal for contactless mobile pickup and delivery orders. Our industry leading food safety protocols result in a culture of continuous improvement to ensure that our customers have consistently excellent experiences. In response to COVID-19, we quickly made critical decisions including: eliminated non-essential travel, implemented work from home, significantly expanded employee benefits, increased sanitization of high touch, high traffic areas, and increased the frequency of personal hygiene practices. All of these initiatives give our employees and customers confidence that Chipotle remains steadfast in our commitment to keeping them safe.
Chipotle has a strong financial position with $909.2 million in cash, restricted cash, and short-term investments as of March 31, 2020 and no debt. In addition, while the Company doesn't intend to utilize the Paycheck Protection Program (PPP) loan provision of the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act, we expect to see a liquidity benefit of about $100 million primarily from deferring social security tax payments and accelerating tax depreciation in previous returns as allowed by the CARES Act.
As sales fell quickly from the impact of COVID-19, we proactively implemented a number of actions to reduce cash outlays and expenses, including the suspension of our stock buyback program. As a result of these efforts and our solid balance sheet as well as the added liquidity from CARES tax deferrals, we believe we have enough cash to sustain us for well over a year. However, if the recovery takes longer than expected, we have the ability to make additional adjustments as needed.
Outlook
Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on the broader US economy and any specific impact to our company, we are withdrawing our previous fiscal 2020 guidance related to comparable restaurant sales growth, new restaurant openings, and effective full year tax rate.
Chipotle remains focused on the safety and well-being of our employees, guests, and our food as we navigate the challenges presented by COVID-19. We are dedicated to keeping our restaurants stocked with gloves, hand sanitizers, masks, and a tamper evident packaging seal for contactless mobile pickup and delivery orders. Our industry leading food safety protocols result in a culture of continuous improvement to ensure that our customers have consistently excellent experiences. In response to COVID-19, we quickly made critical decisions including: eliminated non-essential travel, implemented work from home, significantly expanded employee benefits, increased sanitization of high touch, high traffic areas, and increased the frequency of personal hygiene practices. All of these initiatives give our employees and customers confidence that Chipotle remains steadfast in our commitment to keeping them safe.
Chipotle has a strong financial position with $909.2 million in cash, restricted cash, and short-term investments as of March 31, 2020 and no debt. In addition, while the Company doesn't intend to utilize the Paycheck Protection Program (PPP) loan provision of the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act, we expect to see a liquidity benefit of about $100 million primarily from deferring social security tax payments and accelerating tax depreciation in previous returns as allowed by the CARES Act.
As sales fell quickly from the impact of COVID-19, we proactively implemented a number of actions to reduce cash outlays and expenses, including the suspension of our stock buyback program. As a result of these efforts and our solid balance sheet as well as the added liquidity from CARES tax deferrals, we believe we have enough cash to sustain us for well over a year. However, if the recovery takes longer than expected, we have the ability to make additional adjustments as needed.
Outlook
Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on the broader US economy and any specific impact to our company, we are withdrawing our previous fiscal 2020 guidance related to comparable restaurant sales growth, new restaurant openings, and effective full year tax rate.
Chipotle (NYSE: CMG) stock price history
The image below, obtained from Google, shows the stock price history of Chipotle Mexican Grill (NYSE: CMG) over the last 5 years. And its been a seesaw affair for the group's stock, with it being hit with significant declines since late 2015 and hitting its lows at the start of 2018 with the stock trading around $271 in early 2018.
Since them the group's stock has surged all the way to over $786.69 a stock. Over the last 5 years the stock of Chipotle has returned 23.3% to Chipotle stockholders.
The stock of Chipotle is trading at a lot closer to its 52 week high of $940.28 than it is to its 52 week low of $415 which to us is a clear indication that the short term sentiment and momentum of Chipotle's stock is positive, and than with significantly negative markets in the early parts of 2020 as well as a very challenging operating environment for the group.
Since them the group's stock has surged all the way to over $786.69 a stock. Over the last 5 years the stock of Chipotle has returned 23.3% to Chipotle stockholders.
The stock of Chipotle is trading at a lot closer to its 52 week high of $940.28 than it is to its 52 week low of $415 which to us is a clear indication that the short term sentiment and momentum of Chipotle's stock is positive, and than with significantly negative markets in the early parts of 2020 as well as a very challenging operating environment for the group.
Recent coverage of Chipotle
The extract regarding Chipotle below is as obtained from Investors.com
Chipotle stock rallied late Tuesday after it reported first-quarter results that beat estimates, and the fast-casual Mexican chain said it currently believed that it had enough cash to keep it afloat for "well over a year" as the coronavirus pandemic cuts deep into the restaurant industry. The company also said that same-store sales so far in April had improved, as people likely grow tired of life under quarantine.
Same-store sales in March fell 16%, as the pandemic swept across the U.S. and states limited restaurant service to pickup and delivery, with a 35% drop in the week ended March 29. In April, Chipotle said same-store sales were down less — in the high teens. CEO Brian Niccol, during the company's earnings conference call, attributed the less-worse trends in April to people using up, or throwing away, the items they'd stocked up on as customers stormed grocery stores in February and March. He also said people were losing interest in making food for themselves.
"I think there's fatigue in cooking," he said. "So combine that with the fact that also, tax refunds and stimulus money is starting to get into the hands of people, and I think people are like, You know what? … I think it's time for me to break the routine of being a little stir crazy, and let's reach out to restaurants."
Read the full article here
Chipotle stock rallied late Tuesday after it reported first-quarter results that beat estimates, and the fast-casual Mexican chain said it currently believed that it had enough cash to keep it afloat for "well over a year" as the coronavirus pandemic cuts deep into the restaurant industry. The company also said that same-store sales so far in April had improved, as people likely grow tired of life under quarantine.
Same-store sales in March fell 16%, as the pandemic swept across the U.S. and states limited restaurant service to pickup and delivery, with a 35% drop in the week ended March 29. In April, Chipotle said same-store sales were down less — in the high teens. CEO Brian Niccol, during the company's earnings conference call, attributed the less-worse trends in April to people using up, or throwing away, the items they'd stocked up on as customers stormed grocery stores in February and March. He also said people were losing interest in making food for themselves.
"I think there's fatigue in cooking," he said. "So combine that with the fact that also, tax refunds and stimulus money is starting to get into the hands of people, and I think people are like, You know what? … I think it's time for me to break the routine of being a little stir crazy, and let's reach out to restaurants."
Read the full article here
Chipotle (NYSE: CMG) latest stock valuation
So based on their latest earnings report what do value Chipotle Mexican Grill shares at? And is there value in the stock considering the strong run the stock price had over the last two years? Based on the earnings report and guidance provided our valuation model provides a target price (full value price) for Chipotle at $412.80 a stock (down from our 3rd quarter 2019 earnings valuation of Chipotle). We therefore believe the stock of Chipotle is overvalued.
We usually recommend that investors look to enter a stock at least 10% below our target price which in this case s $412.80. A good entry point into the stock of Chipotle would therefore be at $371.50 or below. Since the stock of Chipotle is trading at well above our full value price we rate the stock of Chipotle as a sell
We usually recommend that investors look to enter a stock at least 10% below our target price which in this case s $412.80. A good entry point into the stock of Chipotle would therefore be at $371.50 or below. Since the stock of Chipotle is trading at well above our full value price we rate the stock of Chipotle as a sell
Chipotle next earnings release
Chipotle is expected to release their 2nd quarter 2020 earnings report towards the end of July 2020