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Oct 25, 2017

S3 Analytics: Chipotle Shorts up $261 million on Profit Shortfall

Chipotle Mexican Grill Inc. (CMG) handily beat its EPS estimates for the 1st and 2nd quarters of 2017 but came up far short in its 3rd quarter results. Chipotle reported EPS of $0.69 which more than doubled last year’s $0.27/share but missed the street estimate of $1.63/share. Revenues were up 8.8% from last year’s figures and revenues were only slightly below analyst’s estimates but maybe Chipotle should not have reported so close to Halloween as their “event jinx” continues.

While they have weathered their 2015 E. Coli outbreak, several outside factors put a dent in their bottom line. April’s data breech, Hurricanes Harvey and Irma, and an increase in avocado and beef prices had an over $0.80/share negative impact on Chipotles earnings.

Chipotle is the largest short in the U.S. Restaurant sector at $1.76 billion. Short sellers were active in October, ahead of the earnings report, and increased their exposure by $238 million, or 16%. Shorts were rewarded for their conviction as Chipotle’s stock price is down 14% in mid-morning trading. Shorts are up $261 million in mark-to-market profits today, bringing year-to-date mark-to-market profits up to $303 million.

Short interest in the Restaurant Sector is up $570 million, or 5%, in October. The S&P Supercomposite Restaurant Index is down 1.2% today but up 12.0% for the year. If shorts continue to build their short positions in the sector, this may be a signal that the rally in the Restaurant Sector is on shaky ground heading into year-end.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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