Chipotle Mexican Grill (NYSE:CMG) delivered better-than-expected Q4 earnings despite pressure on margins from higher commodity costs and wage inflation. Following the Q4 earnings beat, Chipotle stock rose 6.6% during the pre-market session on Wednesday.
It’s worth noting that Chipotle delivered adjusted earnings of $5.58 per share, which handily exceeded the Street’s consensus estimate of $5.25. Meanwhile, it delivered revenues of $1.96 billion in Q4, in line with the consensus estimate.
The key highlight of the quarter was Chipotle’s strong performance on the margins front amid cost headwinds. Chipotle’s ability to increase menu prices and leverage higher comparable restaurant sales helped it to successfully mitigate cost headwinds in Q4. Thanks to this, Chipotle’s restaurant-level operating margin expanded 70 basis points year-over-year to 20.2%.
Now What?
Looking ahead, Chipotle’s CFO Jack Hartung stated that the omicron variant of the coronavirus, higher wages, increased freight costs, and commodity inflation could continue to impact its Q1 financial and operating performance.
Citing challenges from the omicron variant, RBC Capital analyst Christopher Carril lowered his price target on CMG stock ahead of the earnings. Further, Carril lowered his Q1 estimates.
Nevertheless, Carril remains bullish about Chipotle’s prospects and expects it to deliver better than consensus earnings in 2H22 on the back of menu price increases.
While Hartung acknowledged that COVID and weather-related headwinds impacted its January comps, he expects comps to accelerate from January levels, which is positive. Meanwhile, he added, “Our underlying margin remains healthy, and we believe we still have pricing power to use as needed if inflation continues to rise going forward.”
Hartung expects the 4% menu price increase in mid-December and sales leverage to help offset the elevated costs.
Wall Street’s Take
Despite the near-term headwinds, most analysts maintain a bullish view on CMG stock. Its Strong Buy consensus rating on TipRanks is based on 15 Buy and 3 Hold recommendations.
Meanwhile, CMG’s stock price forecast on TipRanks shows decent upside potential. The average Chipotle price target of $1,966.76 implies 34.7% upside potential to current levels.
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