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What to look out for ahead of Chipotle’s Q2 results

As Chipotle’s stock edges past all-time highs, whether it can satisfy investors’ lofty expectations will be a key focus when the company reports its second quarter results on 23 July.

Chipotle Source: Bloomberg

Chipotle Mexican Grill Inc is expected to report its second quarter (Q2) results on 23 July, after the market close.

Analysts remain cautious

Impressive Q1 figures which saw Chipotle deliver double-digit revenue growth and a 100.7% increase in digital sales have seen lofty growth expectations attached to the company. Year-to-date, Chipotle’s stock price has risen 71%.

Nevertheless, according to the Wall Street Journal, analysts remain mixed on the company’s outlook, with a consensus hold rating on the stock.

Chipotle goes digital

A stand out for Chipotle in recent times has been the company’s strategic focus on digitising the restaurant experience. With revenue from digital sales more than doubling during Q1 – and accounting for 15.7% of sales – investors will be looking to see if the company can maintain such incredible momentum in Q2 and beyond.

Besides the company’s new-found digital focus, Chipotle is projecting the total number of new restaurant openings to be between 140 to 155 for the current financial year.

Given that the company has only opened 15 new restaurants so far in 2019’s financial year, investors will likely be keen to see an uptick in this metric during the upcoming Q2 release.

Management’s turnaround

Following up on comparable restaurant sales growth of 9.9% during Q1, the company is now expecting ‘mid to high single digit comparable restaurant sales growth, up from the prior mid-single digit growth expectation’ for the 2019 financial year.

As Chipotle’s chief executive officer (CEO), Brian Niccol pointed out:

‘The ongoing improvement in each of our key operating metrics over the past few quarters gives us confidence that our mission to win today and cultivate the future, is resonating.’

High valuation, high expectations

These ongoing improvements have led investors to bid Chipotle’s stock to record highs in recent times. Currently, Chipotle Mexican Grill Inc trades at a heady price-to-earnings (P/E) ratio of 124, compared to the more modest 22.4 P/E ratio of the S&P 500.

Ultimately, while Chipotle’s digital initiative has reignited the company’s growth story – with such a steep P/E ratio, the potential for disappointment remains high if the company’s Q2 earnings fail to meet investors’ elevated expectations.

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