It was a tough day in trading for restaurant chain Chipotle Mexican Grill, Inc. (NYSE: CMG), as well as the online review site, Yelp Inc. (NYSE: YELP). Both faced headwinds as earnings and the general malaise of the markets came together to deliver less than stellar numbers for both stocks on Wednesday, February 7, 2018.
Chipotle Mexican Grill, Inc. (NYSE: CMG) had the toughest time of the two stocks. The stock sank nearly 12% Wednesday, finishing the day $32.12 to close out at $272.21 – this despite actually beating Wall Street expectations. Analysts had predicted that CMG would deliver earnings per share of around $1.32, but the chain did two cents better, delivering actual earnings per share of $1.34. The surprise number came as CMG confirmed that it had enjoyed a one-time gain as a result of the new Trump tax law.
But it wasn’t just in the tax area that CMG delivered a better than expected result, the chain actually beat out analysts’ expectations on the top line revenue scale. Sales saw a 7.8% year over year increase with Comp-store sales increasing 0.9%.
Operating costs stayed relatively stable so many investors were left scratching their heads as the stock struggled to trade positive on the news. The main problem seems to be a general bearish sentiment among Wall Street analysts, many of whom believe that the restaurant industry itself is going to struggle in the coming months and years.
The good news for Chipotle is that despite these bearish predictions, customers are still walking into their stores. This in itself is a big sign that the company is rebuilding trust after the series of food safety scares that took place in 2016 and 2017.
Yelp Inc. (NYSE: YELP) didn’t quite fare as badly as CMG but it did manage to close down 6%. The basis for its slide was somewhat different, though. In YELP’s case the company managed to come under expectations, reporting Q4 2017 net income of $142M or $1.60 a share. Although this was a measured increase on the figures recorded in the same period in 2016, YELP fell below the net income figure of $215M set by analysts. YELP was quick to issue 2018 projections, citing potential first quarter sales of between $218M to $221M.
It appears in a larger sense, that both CMG and YELP have been victims of the bearish downturn in the markets. This fact as it relates to the state of companies this earnings season will be a force to reckon with for investors. Many will have to decide if sticking with their bets is worth the discomfort that comes with uncertainty, or whether they’ll join the rest of the panic-stricken sellers.