Chipotle gains 5% after impressive Q1

Shares of casual fast food restaurant chain Chipotle Mexican Grill, Inc. gained more than 5% Tuesday afternoon after serving up an impressive first quarter report.

Q1 Details

Chipotle said it earned $3.08 per share in the first quarter on revenue of $1.41 billion versus expectations of $2.90 per share and $1.42 billion. Sales were higher by 7.8% year-over-year while same-store sales were up 3.3% but total transactions were down 1.4%.

Digital sales rose 81% for the full quarter while digital sales in March more than doubled as the company was forced to close its dining room and around 100 locations were forced to shut down completely. This translated to a 16% decline in same-store sales throughout March while March 29 marked a low-point as same-store sales were down 35%.

COVID-19 Update

The COVID-19 pandemic prompted management to implement multiple measures to lower expenses, including the suspension of its stock buyback program. Management said it has the necessary resources on hand to sustain its business “for well over a year.”

Even if a return to normal takes longer than expected, management has the ability to “make additional adjustments as needed.” Management said it has no desire to make use of the Paycheck Protection Program loan provision, it can take advantage of a tax benefit from deferring social security tax payments and accelerating tax depreciation in accordance with the new Coronavirus Aid, Relief, and Economic Security (CARES) act.

The pandemic has brought on a level of volatility and uncertainty that is unprecedented and any impact on Chipotle and the broader economy can’t be estimated, the company said. As such, all prior 2020 guidance metrics are withdrawn, including comparable restaurant sales growth, new store openings, and effective full-year tax rate.

Instant analysis: sales troughed a positive

Shares of Chipotle gained more than 5% as investors recognized sales troughed in late March and management noted it has improved in each of the following three weeks, BTIG managing director and restaurant analyst Peter Saleh said on CNBC’s “Closing Bell.” 

Chipotle ended the quarter with more than $900 million in cash and equivalents which puts it in a good position today, the analyst said. Unlike other restaurant operators whose sales are down 40% to 60%, Chipotle should be able to avoid burning through cash moving forward.

Moving forward, Chipotle paused construction on most new stores in April but there really is no reason to do so, he said. The returns on new stores remain “exceptionally well” at more than 50% cash on cash returns.