Chipotle Mexican Grill (CMG) Q4 Earnings Preview

Secondary plays: RRGB, COSI, PNRA, RUBO, YUM, CKR...

CMG is expected to report Q4 earnings today after the market closes followed by conference call at 5:00Pm ET...

CMG Consensus: First Call Q4 EPS of $0.55 on revs of $288.97 mln and Q4 same store sales street consensus of 10.2%; Q1 EPS of $0.50 on revs of $298.17 mln; FY07 EPS of $2.15 on revs of $1.09 bln; FY08 EPS of $2.74 on revs of $1.34 bln...

Guidance: Co only guides for same store sales. On 1/15, co said for FY07 expect a slight fall-off in comps in Q4 but still remain in double digits (street consensus is for 10.2%) and co reiterated its FY08 guidance of comps low to mid single digit range and EPS of at least 25% long term growth...

Expectations: Since the co became publicly traded in early 2006, it has never missed earnings estimates (on average beat by at least $0.08) and reported revs growth YoY of at least 26%. Gross margin will be key issue with rising commodity prices. On its 10/30 conference call, the co said if it does not see any worsening of commodities they will need a mid single digit comp to hold margins; co believes if at the high end of their comps range would be able to hold margins (if food inflation progressed normally); if at the low end of Y08 comps range then margins would erode. There is ongoing concern regarding the co's valuation, it is valued at almost 3x the P/E of comparable cos...

Briefing note: Short interest is 41% (note this has increased from 27% last qtr), mkt cap is $3.3 bln, float is 14.18 mln and avg volume is 800k. Due to the high short interest, any upside guidance (especially if expects double digit comp growth to continue in FY08) could fuel a move higher...

Areas of Focus on the Call:
1) FY08 outlook (we believe this will be the key driving factor, if co still expects FY08 comps low to mid single digit range it would be first time ever with comps not in double digits)
2) Gross and operating margin (last qtr, gross margins were 23%, slightly down q/q but up 150 basis points YoY, operating margins were affected primarily due to efficiencies in labor and menu price increases)
3) Commentary on economic sensitivity of customers
4) Effects from cost of commodities (so far the co has been able to offset increases in food costs and preserve margins) and any hedging strategies...

Recent price movement: After reporting last qtr, co gapped up ~4% but since reporting last qtr stock is trading down ~18%. Note the stock is up ~80% from a year ago and made a new all time high (~$156) on 12/31 but is now ~28% off this all time high...