Here’s What We Are Watching In Chipotle’s Q3 2017 Results

by Trefis Team
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As it struggles to grow revenue amidst food safety concerns, Chipotle Mexican Grill (NYSE: CMG) will declare its Q3 2017 results on October 24th 2017. While the company introduced the much-in-demand queso sauce to attract customers, initial surveys reveal that the sauce has not found favor in many customers. (Read Here’s How The Negative Response To Its Queso Launch Can Impact Chipotle). Chipotle’s  Q2 2017 results showed that the company was finally on the recovery track, however an isolated incident of norovirus towards the end of the previous quarter further impacted the fragile reputation of the company. We would be closely watching in Q3 2017 whether the company’s new menu items (including queso) have been able to offset the impact of the isolated virus incident and succeeded in driving guest count. (Read Can Chipotle’s New Menu Prove Stronger Than Its New Food Virus Scare). Below is a summary of consensus analyst expectations for Chipotle Mexican Grill For Q3 2017:

Source: Yahoo Finance

While the year on year growth number looks extremely high it is due to a very slow quarter in the previous year as the company was reeling under the E. coli virus impact.

Apart from food safety concerns, Chipotle’s Q3 2017 results are also likely to be impacted by rising avocado prices. Avocado is the main ingredient in Chipotle’s popular guacamole and with a more than 70% increase in prices compared to last year the company’s margins are likely to be impacted. (Read Rising Avocado Prices And Chipotle’s Other Woes).

The company is focusing on marketing and advertising efforts by working on another wave of television advertising for September this year. However, we will be watching whether these efforts will be able to offset the company’s negative recent problems. (Read Here’s How Chipotle Is Looking To Drive Customer Traffic By Its Advertising Campaign).

Challenging Industry Environment Continues

After a minor recovery in June, the restaurant industry remained challenging in Q3 2017 with comparable sales and comp traffic declining in all three months of the quarter, according to data published by TDn2K.

While quick service and fast causal restaurants are performing better than other formats, the two major hurricanes in the U.S. are likely to impact sales negatively. In the last week of August comparable sales in Texas declined by 15% due to the impact of Hurricane Harvey.  The impact of Hurricane Irma, which impacted Florida, is likely to be higher for Chipotle where it operates nearly 140 restaurants. In September 2017, same store sales in Florida declined by 6.2% due to the impact of the storm.

Q3 2017 is a crucial quarter to watch for Chipotle’s turnaround story. We would be watching closely if the company is finally on a recovery path two years after the E. coli virus hit its food.

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