Wall Street Watch Friday: Chipotle Gives Investors Indigestion

ChipotleChipotle Mexican Grill (CMG) is getting flattened like one of its flour tortillas.

The fast casual restaurant chain posted disappointing quarterly results after Thursday's market close. Its outlook for 2013 is even less inspiring.

Revenue climbed 18% to $700.5 million in its latest quarter. Earnings climbed 20% to $2.27 a share. This is the kind of growth and net profit margin expansion that typically excites Mr. Market, but not when Wall Street was holding out for a profit of $2.30 a share on $702.2 million in revenue.

The chain of 1,350 restaurants serving Mexican "food with integrity" stumbled as expansion and a 4.8% increase in comparable-store sales weren't enough to meet the market's lofty expectations.

Coming up short is bad, but warning that things won't get better is worse.

In initiating guidance for 2013, Chipotle now sees comps clocking in between flat and in the low-single digits.

Billionaire hedge fund manager David Einhorn argued earlier this month that Chipotle was a good stock to short. He said that menu upgrades at Yum! Brands' (YUM) Taco Bell were starting to eat into its business. Seeing Chipotle's comps climb by less than 5% after seeing Taco Bell's domestic comps rise 7% during the same three months may suggest that Einhorn knew what he was doing.

Chipotle's certainly not a broken company, but growth is clearly decelerating.

Other Things Worth Watching

• Investors expected a soft quarter out of Microsoft (MSFT), but not this soft. The world's largest software company saw revenue and earnings fall 8% and 22%, respectively. Wall Street was bracing for weakness. PC sales have been sluggish and the real needle-moving events at Mr. Softy -- the rollout of Windows 8, a Microsoft Office update, and the debut of Microsoft's Surface tablet -- are just starting to happen. However, it's problematic when Microsoft comes in below already soft targets.

• The E*TRADE (ETFC) Baby may be going through some teething pain. The discount broker with the popular talking baby ads didn't eat its greens this past quarter. E*TRADE posted a quarterly loss when analysts were banking on a modest profit. This probably isn't much of a shocker. E*TRADE has now missed analyst profit estimates in four of the past five quarters. The good news is that net new customer accounts and assets continue to rise. It won't make the E*TRADE Baby smile, but at least it won't make him cry.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Chipotle Mexican Grill and Microsoft. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill and creating a synthetic covered call position in Microsoft.

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Paul J Reese

Its good, but,, The Chips suck,, I live In PA the Prefab place they put put up 1,2,3 mite be ok in CALI but here its so Friggin cold you can't eat in the place... Duh !

October 20 2012 at 5:32 AM Report abuse rate up rate down Reply

They just opened one in Charlotte, NC at UNCC just lately.

October 19 2012 at 5:41 PM Report abuse rate up rate down Reply

Poor service and ordinary food catering to the palate of the populace in a hurry.

October 19 2012 at 1:14 PM Report abuse -1 rate up rate down Reply
Doug Click

I am going to eat at Chipotle today! It is a great concept and the food kicks butt!

October 19 2012 at 11:45 AM Report abuse rate up rate down Reply

Taco Bell has ruined the tastebuds of anyone who has eaten there. It's highly processed and manufactured. It doesn't take a Rocket Scientist to figure out the menu at Chipotle -- it's called "choice." Fresher really IS better!

David Einhorn may know Wall Street, but you can best believe he hasn't eaten at either store.

October 19 2012 at 11:32 AM Report abuse +3 rate up rate down Reply
1 reply to LizAndrsn's comment

I have and you are wrong. Its fast food. Tastebuds have little to do with it. Cut tomatoes, shredded lettuce, fried beans, grated cheese and other topping are equally fresh at both places. The menu at Chipotle is also called "Expensive. Expensiver isn't better. Why pay 7 bucks for a single burrito at Chipotle when you can get three for that price at Taco Bell. This isn't fine dining, its fast food. FAST FOOD. Paying double or triple the price for perhaps marginally tastier fast food Mexican with slower service and less convenience makes no cents (pun intended).

October 19 2012 at 12:06 PM Report abuse -3 rate up rate down Reply
1 reply to wlh1923's comment

You do realize that taco bell is one step above dog food.

October 19 2012 at 8:04 PM Report abuse rate up rate down

The food at Cipotle is the worst ever. The menu stupid and doesn't have most REAL Mexican food favorites. Who cares if they disappear?

October 19 2012 at 10:56 AM Report abuse -4 rate up rate down Reply

but together another line so you don't have to wait 1/2 hour to get to the counter.

October 19 2012 at 10:03 AM Report abuse rate up rate down Reply

Chipotle, that is the dumbest restaurant I have ever visited. Not only could I not figure out the menu, neither could the people working there!

October 19 2012 at 9:40 AM Report abuse -4 rate up rate down Reply