Chipotle's Stock Needs a Jolt. An Earnings Beat Might Not Be Enough. — Barrons.com

What happened

Chipotle is set to report third-quarter results Wednesday after the market closes. Analysts expect revenue to rise 9.4% to $3.29 billion, with adjusted earnings at 29 cents a share, unchanged from last year, as higher beef, freight and labor costs squeeze restaurant margins.

Confirmed

Global impact / market context

Chipotle's stock is down 24% this year, so an earnings beat alone may not satisfy investors who want proof the sales recovery can last. If margins stay squeezed by higher beef, freight and labor costs, profit growth could lag revenue growth and keep pressure on the shares.

Analyst inference

The stock rallied during the summer but has retreated sharply since August, recently hitting its lowest level in more than three years, leaving shares down 24% year to date. That weak backdrop means expectations are low, but investors still want evidence that growth at existing restaurants can be sustained.

Analyst inference

What to watch

1. Watch whether sales growth at existing restaurants continues, since Chipotle has struggled to keep that growth going even as it rapidly opens new locations. Confirmed
2. Watch management's plans to speed up service, improve the customer experience and draw diners through promotions and marketing, which are CEO Scott Boatwright's efforts to revive growth. Proposed
3. Watch restaurant margins, because higher beef, freight and labor costs continued to squeeze them, and that pressure explains why investors have been impatient with the stock. Analyst inference

Evidence

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