Chipotle Mexican Grill stock (NYSE: CMG), a fast-casual restaurant chain that focuses on fresh and organic ingredients in burritos, salads, and more, is scheduled to report its fiscal third-quarter results on Thursday, October 26. We expect CMG’s stock to trade higher due to revenues and earnings beating the expectations in its third-quarter results. Chipotle’s growth is slowing, but still, its profitability is holding up well – thanks to raised prices. The company’s management highlighted that it saw elevated costs across the board in Q2, most notably in beef, tortillas, dairy, salsa beans, and rice. That said, the company’s balance sheet remains strong at $1.8 billion in cash, restricted cash, and investments, with no debt. It opened 47 new restaurants in the second quarter of which 40 had a Chipotlane (drive-thru) and it remains on track to open between 255 and 285 new restaurants this year with at least 80% including Chipotlane. CMG’s positive performance so far can be attributed to restaurant-level operating margin expansion, menu innovation, price increases, and good execution of the company’s digital strategies.
Going forward, Chipotle expects comps in a low to mid-single-digit range driven by transaction growth in the upcoming third quarter. It continues to forecast full-year comps in the mid-to-high single-digit range. For Q3, CMG expects the cost of sales to be around 30% due to higher beef and avocado prices. CMG’s supply chain team has been diversifying its avocado exposure, and in the third quarter, the majority of the avocados are expected to come from Peru. While prices are higher than the very favorable levels in the second quarter, still the company is less impacted by the volatility in the Mexican avocado market.
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