Wall Street Watch Friday: Chipotle Gives Investors Indigestion


Chipotle 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.

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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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