Chipotle, Snap, And McDonald’s Earnings Reviews

Another Failed Breakout Attempt

Stocks were up slightly during the morning and afternoon, but fell in the last 100 minutes of the trading session. S&P 500 wasn’t on the verge of new record high, but it would have been very close. Instead, because of the selloff the S&P 500 fell 0.36%. One of the blames given for the selloff was earnings. But reports from the morning didn’t cause stocks to reverse course in the afternoon.

Stocks slid because U.K. politicians rejected a limited time frame to review a deal on Brexit. An October 31st deadline extension is now more likely. Parliament has most likely set the U.K. on the course towards a December national election. This entire situation is like a tangled web. We should be thankful it only causes minor movements in our markets. So that we don’t need to make de facto bets on its outcome every time we make an investment.

Review Of Tuesday’s Trading Session

Nasdaq fell 0.72% and the Russell 2000 was up 5 basis points. VIX increased 0.46 to 14.46. CNN fear and greed index rose 3 points to 59 even though stocks fell. A rally in stocks on Wednesday could push it to extreme greed which would be a bearish signal. 

2 best sectors on Tuesday were energy and industrials which rose 1.31% and 0.81%. Two worst sectors were tech and communication services which fell 1.37% and 0.9%.

Chipotle’s Great Earnings

For the rest of this article, I will discuss the most interesting earnings reports which have recently come out. Let’s start with Chipotle which had another smashing success. The firm reported $3.82 in EPS which beat estimates by 60 cents. Revenues of $1.4 billion met estimates. 

As the chart below shows, yearly revenue growth accelerated to 14.6%. In 6 of the past 7 quarters, it has had accelerating revenue growth. This explains why its stock is up 92.47% year to date. That’s with its 2.4% decline on Tuesday, but not with its 2.05% decline after hours. You can’t expect a stock up this much recently to rally after hours on a good report. A straight A student got another A.

As the chart in the bottom left corner shows, same store sales growth was a fantastic 11%. It accelerated from 10% and beat estimates for 9.3%. In 6 of the past 7 quarters, it has had accelerating same store sales growth. 2 year growth stack was 15.4%. Next quarter should see a decline in same store sales growth because its comp is a decently high reading of 6.1%. No one even mentions the E. coli health scare from a few years ago as this firm is firing on all cylinders.

An amazing 11% same store sales comp was mainly driven by transactions which were up 7.5%. That means there was a 7.5% increase in traffic and a 3.5% increase in pricing. Customers are buying more items per transaction and prices were raised in 2018. The firm’s digital strategy has been behind its great year. 

Chipotle is known for having a younger customer base. Millennials seem to love the firm’s app. Digital sales growth was 87.9% which is 18.3% of total sales. It’s a big chunk of sales, so such high growth has a massive impact on the top line. Chipotle has 7 million members in its loyalty program though its app.

Chipotle launched its first new protein in 3 years. It launched carne asada which costs 50 cents more than original steak. This is a limited time offer. I love that Chipotle is adding diversity and new flavors to its menu because it can get stale. It's good to read reviews on this new protein. They stated the flavor with the lime was good, but the strips were too large unlike the cubes of meat in the original steak. I don’t see this limited time offer as being a boon to the firm’s bottom line. 

Better luck next time. Chipotle is testing new salads and quesadillas. Finally, the firm is also adding drive throughs to 40 of its new restaurants after successfully testing it at 20 of them.

Snap Stock Falls On Weak Guidance

Snap, which owns the teen messaging app Snapchat, reported a loss of 4 cents which beat estimates by 1 cent. Revenues were $446 million which beat estimates by $8.9 million. It had 210 million daily active users which beat estimates for 207 million. Average revenue per user was $2.12 which beat estimates by 2 cents.

These results all look great, but weak guidance ruined the quarter causing its stock to fall 3.43% after hours. It had already fallen 3.98% on Tuesday. Even still, its stock is up 154.08% year to date. Q4 revenue guidance was expected to be from $540 million to $560 million. Midpoint of that is below estimates for $555.4 million. The firm cited weakness expected to occur because of the later Thanksgiving. Black Friday is on November 29th.

McDonald’s Loses Out To The Competition

McDonald’s probably was hurt by Chipotle’s success. The firm reported EPS of $2.11 which missed estimates by 10 cents. Its $5.4 billion in revenues missed estimates by $100 million. Global same store sales growth was 5.9% which beat estimates by 0.3%.

This weakness caused its stock to fall 5.04% on Tuesday as it reported in the morning. A key area of weakness was in American units as the firm ended its limited time value deal called the 2 for $5 Mix and Match. Its latest promotion where customers buy one and get one for $1 is more expensive. That explains why domestic same store sales growth fell from 5.7% to 4.8%. That missed estimates for 5.2%.

Besides dealing with Chipotle, McDonald’s dealt with the launch of Wendy’s spicy chicken nuggets and Popeyes Louisiana Kitchen’s new chicken sandwich. There was a social media chicken sandwich battle between Chick-fil-A and Popeyes. Burger King also launched a plant-based version of its Whopper called Impossible Whopper. 

McDonald’s will need to deal with Wendy’s breakfast launch in Q1 2020. And, McDonald’s needs to act fast to keep up with the competition. It should launch a Beyond Meat Big Mac. 

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