Why did Chipotle plummet after a strong quarter?

Chipotle behind the counter
Despite a strong earnings report, Chipotle Mexican Grill Inc. stock dropped 6.97 percent to $676. (Jessica Gable/Medill)

By Alysha Khan

Despite a strong earnings report, Chipotle Mexican Grill Inc. stock surprisingly dropped seven percent to $676 amid concerns of slowing store sales and a possible hike in prices.

Stephen Anderson, senior restaurant analyst at Miller Tabak + Co., LLC, said the drop was driven by Chipotle executives lowering their 2015 forecast for sales for locations open more than 12 months.

Officials forecasted a low to mid-single digit increase for same-store sales but Anderson said investors were looking for a mid to high-single digit increase.

“The expectations were pretty high and they only met or missed them,” Anderson said.

In 2014, same-store sales rose 16.8 percent, and for the fourth quarter same-store sales rose 16.1 percent from the year-earlier quarter. Chipotle owns 1,783 locations, 192 of which were opened in 2014. For the next year, the chain anticipates opening 190 to 205 new restaurants.

Summary of Chipotle Mexican Grill Inc.'s fourth quarter earnings (Alysha Khan/Medill)
Summary of Chipotle Mexican Grill Inc.’s fourth quarter earnings (Alysha Khan/Medill)

Sara H. Senatore, senior research analyst at AB Bernstein, wrote in a research note that “a persistent headwind” for the chain is the possibility of higher commodity prices.

Senatore noted that on the conference call with analysts, company officials floated the idea of raising prices on their steak and barbacoa entrees because of the rising cost of beef. However, they rejected the possibility of an across the board hike in the aftermath of the company’s price increase in May on chicken and beef entries.

“It’s important to us that remain accessible or affordable to our customers as this is the core to our ability to change the way people think about any fast food,” said John Hartung, chief financial officer on the call.

Senatore, however, wrote that the company’s long-term health is “not in question.”

The Denver-based company earned $121.2 million, or $3.84 per diluted share, in the fourth quarter ended December 31, compared with $79.6 million, or $2.53 per diluted share, in the year-earlier quarter. Analysts surveyed by Bloomberg expected $3.78 per diluted share.

Revenues rose 26.7 percent to $1.07 billion from $844.1 million in the year-earlier quarter but fell just shy of analyst expectations of $1.074 billion in revenue.

For the full year 2014, Chipotle reported earnings of $445.3 million, or $14.13 per diluted share, up 27.8 percent from the year-prior $327.4 million, or $10.47 per share. Revenue increased to $4.11 billion from $3.21 billion.

Photo at top: Despite a strong earnings report, Chipotle Mexican Grill Inc. stock dropped 6.97 percent to $676. (Jessica Gable/Medill)
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