Catering "big cattle" Mexican barbecue Q2 earnings report is good, the stock price is expected to reach a new high?

After the US restaurant stock Mexican BBQ Company (NYSE:CMG) announced its better-than-expected latest earnings report after the US stock market on Tuesday, its stock price soared more than 4% to US$1642.99.

In the past year, thanks to the increase in online orders stimulated by the epidemic blockade, the stock price of Mexican BBQ has soared 65.65% in 2020. However, after entering 2021, the Mexican barbecue share price has performed fairly well, with the first half year increase of only 11.90%, slightly lower than the 13.4% increase of the S&P 500 index.

Then, as the financial report improves, we can't help asking: Can the Mexican barbecue performance support the stock price to continue to rise? Can investors buy now?

According to the financial report data released by the Mexican BBQ, in the second quarter ended June 30, the Mexican BBQ reported revenue of 1.89 billion U.S. dollars, a 38.7% increase from the same period last year and higher than the analyst's 1.88 billion U.S. dollars. , Is also higher than the previous value of 1.365 billion US dollars; earnings per share is 7.46 US dollars, the expected value is 6.49 US dollars, exceeding market expectations by 14.95%. In the quarter, sales of Mexican barbecue comparable restaurants increased by 31.20% year-on-year, higher than the 17.20% increase in the same period last year.

"The performance of the second quarter of Ink BBQ highlights the strength of our brand and employees, and demonstrates the strong momentum of our performance growth." The CEO of Ink BBQ said in a statement, "We still have confidence in our key growth strategies. "

For investors, the first concern is whether the previous increase in hourly wages for Mexican barbecue will increase costs, which in turn will impact the company's profit margins. On the other hand, although the inoculation rate in the United States continues to increase, the risk of the delta mutant strain cannot be ignored. This mutant virus has caused some parts of Southeast Asia to re-take restrictions. Whether the Mexican barbecue will be affected by the epidemic in the future is also an investor. Concerned.

In order to maintain its dominant position in the industry, Mexican BBQ said in May that it plans to hire 20,000 employees across the United States and increase their hourly wages. By June this year, the average hourly wage will reach $15. Through the comparison of financial report data, it is found that the increase in hourly wages has indeed increased the company's operating costs. The company's labor costs in the second quarter rose to 464 million US dollars, an increase of nearly 7% from the first quarter. Wall Street analysts also predicted in Monday's report that an increase in employee hourly wages may indirectly lead to a 4% increase in menu prices.

However, labor costs are not the largest proportion of cost expenditures for the ink-style barbecue, nor is it the company's most worried about. Expenses on express delivery, avocado and other food, beverage and packaging (Food, beverage and packaging) are what makes the company's brains awkward. An analyst at investment company William Blair pointed out that during the epidemic, people have adapted to the delivery services of companies such as DoorDash and Uber Eats, but these companies may charge restaurants as much as 30% of commissions. Investors should be more concerned about whether catering companies can digest. This part of the cost. Even Jack Hartung, Chief Financial Officer of Mexican BBQ, admitted in an interview that subject to rising beef prices and freight prices, the cost of this part of the next quarter may increase.

Digital sales that made people’s eyes during the epidemic last year surged by 10.5% year-on-year to US$916.5 million this quarter, accounting for 48.5% of total sales. In the first quarter, this ratio was once more than 50%. In the second quarter, Mexican BBQ opened 56 new restaurants, of which 45 restaurants have Chipotlane (direct digital order transfer channel), through this channel customers can pick up orders without leaving the car. This part of the revenue is Attributable to digital sales. The CFO of Ink BBQ pointed out that although the growth of comparable restaurant sales in this quarter was largely driven by the return of customers to offline stores, he is still pleased with the high growth of digital sales.

Therefore, it is believed that when digital sales account for nearly 50% of total sales, even if offline stores are facing the epidemic, the impact on the company's overall business will be limited. Furthermore, as the Mexican barbecue continues to open stores in the second half of the year, under the dual promotion of digital channels and offline channels, the performance will continue to grow.

All in all, the financial report handed over by the Mexican BBQ can generally reassure investors. Although the increase in hourly wages and avocado costs squeezed profit margins, the company's operating profit margin rose to 24.5% in the second quarter. This has more than doubled over the same period last year and is also the highest level since the third quarter of 2015. Digital sales, which performed well during the epidemic, also continued to maintain strong growth. With the opening of more stores in the second half of the year, the company's performance is expected to continue to rise.

According to TipRanks data, among the 23 analysts who tracked Mexican barbecue, 16 analysts gave a buy rating, the rest gave a hold rating, and no analyst gave a sell rating. The average target price given by the analyst is $1679.24, which is 6.66% upside compared to the current stock price. The highest target price given by the analyst is $2,100.