It was a rough summer for Chipotle Mexican Grill (NYSE: CMG), as a July norovirus outbreak at a Virginia restaurant sent the stock reeling. Then an all-natural queso was released in several test markets before being rolled out nationwide in mid-September, causing some to swoon, but also sparking mockery.
Now it's fall and Chipotle is set to report third-quarter results on Oct. 24. There are several moving parts to this report and here's what investors should look for.
Image source: Getty Images.
A different way to look at things
As always, analysts will be on the lookout for comparable-store sales, which track how much the average restaurant earned compared with last year. Obviously, only restaurants that are at least a year old qualify for the calculation.
The norovirus incident may well have put a crimp in Chipotle's sales in the quarter, although perhaps the late-quarter rollout of queso could offset the blemish. On the last earnings call, on July 25, Chipotle management said the outbreak had decreased same-store sales by 5.5% over the past several days.
Since we're now two years removed from the infamous 2015 E. coli incident, investors may wish to look at the "two-year stack," or comparable-store traffic compared with two years ago (pre-E.coli).
Here's how that two-year stack looks over the past three quarters:
| Period | Two-Year Stack |
|---|---|
| Q4 | (18.7%) |
| Q1 | (17.2%) |
| Q2 | (17.4%) |
Data source: Chipotle. Calculation by author.
As you can see, the "stack" ain't pretty. Though the metric showed marked improvement in the first quarter, it dropped back again in Q2 and is still well below 2015 levels. This could have been due to the data breach announced on the first-quarter earnings call, or merely be a bump on the way to an uneven recovery. Still, things weren't exactly going great, even before the July norovirus incident.
Can queso save?
There's been a lot of hype about this summer's queso rollout, which did seem to overwhelm the news around the norovirus incident. But at least one analyst, Andrew Charles of Cowen, whose note was quoted by CNBC, was skeptical:
In our prior analysis we saw the Week 1 queso lift progressively decelerate through Week 2. This trend of a deteriorating lift from queso intensified through Week 3 to end 3Q. ... We view the data as supportive in our belief that queso is unlikely to be a sustainable driver of sales.
Chipotle reacted fairly strongly to Charles' commentary, as well as to the ongoing narrative (on social media, at least) that people don't like Chipotle's queso. Company spokesperson Chris Arnold released a statement saying: