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CMG Stock: Chipotle Misses, But Bought Back $116 Million in Stock

By U.S. News & World Report

Fast-casual pioneer Chipotle Mexican Grill (ticker: CMG) posted sharply lower revenue and earnings Thursday as the company continues to struggle following a serious drop-off in business caused by a series of E. coli, salmonella, and norovirus outbreaks linked to its restaurants.

But despite the second-quarter miss on both revenue and earnings, the company says it has returned to profitability, and shares were little-changed in trading immediately after the release.

Before Thursday’s report, CMG stock had fallen 38 percent last year and 13 percent in 2016. In the first quarter, Chipotle posted its first-ever loss as a public company. But in Thursday’s report, CMG’s struggles were on full display again.

Earnings per share cratered, slumping from $4.45 a year ago to 87 cents. Revenue also slumped, falling from $1.2 billion a year ago to $998.4 million. Analysts were expecting EPS of 93 cents on revenue of $1.05 billion.

[See: Artificial Intelligence Stocks: 10 Companies Betting on AI.]

A long road to recovery. Despite a steadfast expansion in its store base, Chipotle’s financial recovery is expected to be a multi-year process. In 2015, CMG earned $15.10 per share; going into Thursday’s report, Wall Street expected EPS of just $4.39 in 2016 and $11.23 in 2017. Heavy promotions like free burritos and buy-one-get-one-free coupons, on top of loyalty programs and a slightly expanded menu haven’t yet been able to bring all its customers back.

K C Ma, professor of finance at Stetson University, doesn’t think old-school marketing and promotion gimmicks will be enough to put the Chipotle back on good footing.

“The company will have to eventually confront the real issue by openly announcing new, stricter food safety protocols to win back customers’ trust. Otherwise, it will take a much longer time to repair the damages to the company’s reputation,” Ma says.

That said, the company claimed its loyalty program, Chiptopia, was “off to a nice start.”

[Read: How to Tell a Company Is in Trouble.]

Still, it wasn’t nice enough to make much of a difference in Chipotle’s results. Same-store sales dropped 23.6 percent last quarter, following a 29.7 percent first-quarter slump and a 14.6 percent fourth-quarter slowdown. It’s tough to grow a business that way.

Restaurant level operating margins were also down, falling to 15.5 percent from 28 percent in the year-ago period. In its news release, Chipotle said the decrease was “primarily driven by unfavorable sales leverage, and to a lesser extent by higher marketing and promotional costs.”

The company still expects to open between 220 and 235 new restaurants this year, consistent with prior guidance.

Believe in yourself. To the company’s credit, Chipotle has invested heavily in itself, even as Wall Street punished its share price, which has a 52-week high of $758.61 but closed Thursday at $418.07. In the fourth quarter, Chipotle bought back $460.7 million worth of CMG stock, then followed that up with another $583.8 million buyback in the first quarter.

Chipotle continued buying back stock last quarter, spending over $116 million on buybacks in the second quarter. That strategy could end up working out, but so far it’s been a poor investment for shareholders and Chipotle’s cash and investments have fallen from $879.2 million a year ago to just $270.1 million today.

Not only does that give Chipotle less money to buy back its own stock, but more importantly it reduces its ability to reinvest in its own expansion. Stock buybacks aren’t always the best way to allocate capital; purchases are hard to time correctly, they’re often done for the wrong reasons, and the opportunity cost can be extraordinary.

When a company buys back stock, discerning whether it’s a good or bad idea can be as simple as taking a look at its financial statements. With Chipotle’s rapidly depleting cash pile and the poor timing of its buybacks thus far, the company might be wise to stop buying back CMG stock so aggressively.

The birth of tragedy. Chipotle’s woes all started with a series of food safety crises that began last summer. Hundreds of customers came down with a variety of food-borne illnesses after several outbreaks hit select Chipotle restaurants across the U.S.

The outbreaks, which occurred between August and December of 2015 and involved restaurants in 13 separate states, were thought to have been over, and on Feb. 1, the Centers for Disease Control declared that the outbreaks finished.

[Read: Yes, Risky Investments Have a Place in a Portfolio.]

Then, in March, consumer fears were revived as several employees at a Massachusetts Chipotle came down with norovirus. While there have been no outbreaks since then, it’s clear the company remains on fragile footing.

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CMG Stock: Chipotle Misses, But Bought Back $116 Million in Stock originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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