23 July 2020

Upbeat 2Q Fails to Make Chipotle Stock Tastier

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News shaping
the markets today

     

What’s happening: Shares of Chipotle Mexican Grill Inc declined in extended trading on Wednesday despite the food chain reporting stronger-than-expected results for the second quarter.

What happened: The Mexican fast-casual chain relied deeply on digital orders in the second quarter, with people staying home amid the coronavirus crisis.

Despite the company generating sales growth in June, after two months of declines, investors did not seem optimistic about Chipotle’s prospects.

How were the results: Although Chipotle reported a decline in profits and sales for the second quarter, both metrics topped market expectations.

  • Sales declined 5% to $6.04 billion, from $6.35 billion in the same quarter last year, while surpassing the consensus estimate of $5.15 billion.
  • Net income came in at $8.2 million, or 29 cents per share, down sharply from $91 million, or $3.22 per share, in the year-ago quarter.
  • Excluding onetime items, earnings were 40 cents per share, versus $3.99 per share a year ago, and exceeding estimates of 35 cents a share.

Why it matters: As widely expected, Chipotle’s sales and profitability worsened in the second quarter. Nonetheless, the Mexican chain had a bunch of good news for investors.

Despite recording a 24% decline in sales in April and a 7% downturn in May, the company turned its business around in June to generate 2% growth in sales. During the earnings call, CEO Brian Niccol highlighted Chipotle’s strong financial position as well as the sales rebound and improving comp trends. He further said that the company had “built an operating model that’s designed to generate strong performance in a wide variety of environments.”

Chipotle has partnered with Uber Eats and Grubhub to boost deliveries. With these partnerships in place, digital sales spiked by 216% in the second quarter, contributing around 61% of overall sales.

Around 15 million people are now enrolled in the company’s rewards program, versus 11.5 million in April. Chipotle also has plans to speed up opening new sites in 2021.

As of June 30, the company had cash, short-term investments, and restricted cash of $934.6 million, with no debt.

Given the economic uncertainties surrounding the pandemic, Chipotle did not issue any forecast for the year.

How shares responded: Chipotle’s shares slipped 1.3% to $1,170.00 in after-hours trading following the release of quarterly results. The stock had gained 1.9% in the regular session. Chipotle’s shares have climbed around 11% over the past month and is up around 42% year to date.

What to watch: With Chipotle delivering a rebound in overall sales backed by a strong rise in online sales, investors expect the company’s results to improve significantly in the near term.

The Markets Today

     

US stocks will be in focus today, ahead of initial jobless claims data scheduled for release later in the day.

Context: US equities closed higher on Wednesday with a rise in shares of utilities. Investors remain concerned, however, over discussions around the government’s plans of another recovery package.

Details: Tensions escalated again between Beijing and Washington after the US gave China 72 hours to close its consulate in Houston. China termed the move as abrupt and threatened to retaliate, amid deteriorating bilateral ties.

The earnings season has so far supported the US stock market, with many giants reporting stronger-than-expected results.

On the economic data front, existing home sales surged 20.7% at a seasonally adjusted annual rate of 4.72 million in June.

Shares of Advanced Micro Devices gained more than 8% to hit a record high on Wednesday. Tesla’s shares gained around 2% and has been hovering close to the $1,600 mark.

The Dow Jones index climbed 165.44 points to settle at 27,005.84 on Wednesday, recording its highest finish since June 9. The S&P 500 gained for the fourth consecutive day, rising 0.6% to 3,276.02. After trading down earlier in the session, the Nasdaq 100 rose 0.2% to 10,706.13.

What to watch: Investors await data on initial jobless claims, CB leading index and Kansas City Fed's manufacturing production index from the US. About 1.3 million workers are projected to file for jobless claims, while the Conference Board’s leading index is expected to rise 2.1% in June.

Investors will focus on the Congressional discussions around a fresh fiscal stimulus package. Markets also continue to keep an eye on the coronavirus numbers, with total cases in the US exceeding 4 million.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 0.4%, 0.3% and 0.4%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UK’s CBI industrial trends orders and business confidence, Eurozone’s consumer confidence indicator as well as the US EIA’s natural gas stockpiles.

 

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