Chipotle earnings preview: Investors are watching sales growth, price hikes - Yahoo Finance

Chipotle (CMG) will report its third-quarter earnings results on Thursday after the bell.

Investors are anticipating single-digit sales growth with positive transaction growth, following the return of the Carne Asada in mid-September, a fan favorite in 2019.

The limited-time offering laps the "lackluster performance of Garlic Guajillo" this time last year, Wedbush analyst Nick Setyan said in a note to clients.

According to Bloomberg consensus estimates, same-store sales are expected to jump 4.37% year-over-year. That's lower than Q3 last year, when same-store sales increased 7.6%.

Setyan added, "We believe Q3's weakness is baked into shares" and was "due in large part to normalization in seasonal trends."

Chipotle is well liked among Wall Street though, with 24 buys, 10 holds and no sells as of Wednesday. Year-to-date, Chipotle shares are up 32.61%, which is more than the S&P 500 (^GSPC), up roughly 9%.

It's considered a "top pick," based on the strength of its "fundamental story" with accelerating unit growth and margin expansion, according to a note to clients from Deutsche Bank analyst Lauren Silberman.

"There is a scarcity value for a high quality, US-based company with a clean balance sheet, strong fundamentals and upside to numbers," she said.

TD Cowen analyst Andrew Charles called it "well liked" in a note to clients, with expectations for the company to share "initial guidance for 2024 development."

In 2023, it plans to open a total of 255 to 285 new restaurants, and 10-15 existing locations will add its drive-thru feature Chipotlane. Long-term, it plans to open 7,000 restaurants in North America. As of the end of Q2, there were more than 3,200.

In July, Chipotle announced its first-ever development agreement to open locations in the Middle East and accelerate its international efforts early next year.

The earnings rundown

Here's what Wall Street is expecting to see from Chipotle, according to Bloomberg consensus estimates:

Net sales: $2.47 billion expected, up 11.3% from a year ago

Adjusted EPS: $10.51 expected, up 9.8% from a year ago

Same-store sales: 4.37% expected

Digital sales growth: 8.79% expected

Operating margin: 15.4% expected

Net addition of locations: 67.14

AUSTIN, TEXAS - APRIL 26: A customer walks away with their food at a Chipotle Mexican Grill restaurant on April 26, 2023 in Austin, Texas. (Photo by Brandon Bell/Getty Images)

This earnings report follows the burrito chain's decision earlier this month to raise prices for the fourth time in two years.

While the company hasn't said when or how much prices will change, many on the street speculate it will be roughly a 3%-3.5% increase in the middle of Q4 when an updated menu typically comes out.

But pricier tacos haven't dimmed Chipotle's growth prospects. The chain could see higher revenue next quarter as a result of the hike.

Silberman expects Chipotle to share more about its same-store sales guidance, where mid-single digits growth are expected. Given the price increase, mid-to-high single digit same-store sales growth "could be possible", she said.

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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