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CMG Stock Pops as Chipotle Beats on Earnings, Raises Prices

Investor Place · 07/27/2022 11:30

Honesty, who likes higher food prices? Hardly anybody on Main Street does, but the financial markets have different standards. If Chipotle has to increase its food prices in order to beat earnings estimates, so be it.

At least, that seems to be Wall Street’s response to Chipotle’s Q2 2022 results. Granted, the company’s $2.21 billion in revenue fell short of the $2.24 billion analyst consensus estimate. However, that result still indicated 17% YOY growth.

The real focal point of the quarterly results, though, was Chipotle’s adjusted diluted earnings per share of $9.30. In the year-earlier quarter, that figure was only $7.46. Moreover, for Q2 2022, the analysts had only expected $2.21 billion.

What’s Happening With CMG Stock?

Amazingly, by 10:45 a.m. Eastern, CMG stock was up 14% and touching the crucial $1,500 level. There’s a stubborn resistance level at $1,600, so today’s price action could mark a stepping stone on the way to bigger and better things.

Shouldn’t inflation have had a negative impact on Chipotle, though? Indeed it did, as the company acknowledged “higher costs for avocados, packaging, dairy, beef and chicken.”

In the unpredictable world of finance, though, companies can sometimes turn a negative into a positive. Thus, Chipotle’s restaurant-level operating margin for 2022’s second quarter was 25.2%, representing an increase from the year-earlier quarter’s 24.5%. To a certain extent, according to Chipotle, this increase was “primarily due to the benefit of menu price increases.”

It’s hard for most customers to interpret menu price increases as a “benefit,” but it is what it is. Also, investors probably were glad to know that Chipotle’s board of directors approved up to an additional  $300 million worth of share buybacks during the second quarter.

So, costlier burritos are somehow a good thing. Who would have guessed it? In any event, don’t be surprised if Chipotle implements “planned price increases in August, in the mid to high-single digits.” Time will tell whether the customers are willing to pay even more for those burritos, it seems.

On the date of publication, David Moadel  did not have (either directly or indirectly) any positions in the securities mentioned in this article.  The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com  Publishing Guidelines.

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