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Chipotle’s Stock Down 5% After First-Quarter Earnings Disappoint Wall Street … Time to Buy?

Chipotle Mexican Grillreported results for the first quarter of 2015 after the market close today. Chipotle's earnings exceeded Wall Street's expectations, but revenue came in slightly below consensus estimates. As I write this at 5:30 p.m., shares are down 5% on the news.

Revenue for the quarter surged 20.4% year over year to $1.09 billion, slightly below expectations of $1.11 billion, with supply chain shortages that led to the removal of pork products at some of its restaurants, negatively affecting results.

Helping to drive that revenue growth was a 10.4% jump in comparable restaurant sales, aided by price increases that were rolled out during the second quarter of 2014. While impressive, the comp number was below analyst estimates of 11.8% growth, which is probably also contributing to the after-hours decline in Chipotle's share price.

While revenue and comp growth were below analyst expectations, Chipotle's earnings per share of $3.88 came in well above consensus estimates of $3.66, representing strong year-over-year growth of 47%. Contributing to the earnings beat was a 160-basis-point improvement in restaurant-level operating margin to 27.5%. Some analysts were expecting restaurant-level operating margin to decrease this year because of higher beef costs, but menu price increases and the operating leverage gained from higher sales more than offset the impact of higher protein costs.

Also of note is that Chipotle opened 49 new restaurants during the quarter, bringing its total restaurant count to 1,831. And, impressively, average sales volumes per restaurant reached a record $2.5 million.

Looking ahead, management expects 190 to 205 new restaurant openings in 2015, with "low- to mid-single-digit" comparable restaurant sales increases.

Looking further ahead, as we Fools like to do, Chipotle remains an impressive long-term growth story. Management sees the potential for 4,000 stores, and that doesn't include new, early stage concepts such as ShopHouse and Pizzeria Locale . The company's " Food With Integrity " mission clearly resonates with consumers and has helped Chipotle build a powerful brand and loyal customer base. Chipotle's high-quality ingredients and the trust it's earned among its customers also give the fast-casual chain pricing power, which allow it to pass on rising food costs and protect its margins. Combined with Chipotle's ultra-efficient operations, that's led to industry-leading restaurant-level economics, which, in turn, allow Chipotle to consistently generate strong operating cash flow (up 35% in the first quarter). That steady cash-flow generation allows Chipotle to self-fund its growth and also return cash to shareholders in the form of share buybacks.

All told, this type of compounding cash-flow growth is an excellent recipe for long-term shareholder value creation. And should the shares continue to pull back in the days ahead, Fools may wish to consider taking a bite of this best-in-class restaurant operator.

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The article Chipotle's Stock Down 5% After First-Quarter Earnings Disappoint Wall Street … Time to Buy? originally appeared on Fool.com.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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