The Ratings Game: Chipotle’s carne asada supply is running low, bringing the limited-time offer to an early end

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Chipotle Mexican Grill Inc.’s carne asada limited-time offer is going to last for an even more limited time than some would like.

Chipotle said the supply is running low, so fans only have a few more weeks to get their fill before it goes away.

“[W]e only have enough supply for carne asada to last us part of the quarter,” said Jack Hartung, chief financial officer at Chipotle, on the company’s third-quarter earnings call, according to a FactSet transcript. “We think we’ll probably run out around the end of November, maybe into early December and so we’re being a little cautious with what happens once we run out of carne asada.”

Hartung went on to say that the start of the quarter has been solid, but there’s “a tougher challenge as we move through the quarter.”

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Chipotle’s carne asada is steak seasoned with lime, cilantro and spices. Carne asada is made from a better cut of meat, which offset any gains made through moderating avocado prices, Hartung said on the call.

Carne asada went through the company’s “stage-gate process,” which vets items and initiatives before they’re added to the menu or implemented. Chipotle’s loyalty program went through the process, and queso blanco is going through it now.

Hartung, who spoke with MarketWatch after the call, said that Chipotle began looking for a carne asada source six-to-eight months ago. In keeping with the company’s “food with integrity” guideline, it took animal treatment and other factors into account.

“It was so popular that, with more notice, now 12 months, we can secure even more supply,” he said. “The grow-out for cattle is two-to-three years, so it’s not something you can do overnight.”

The abbreviated carne asada run doesn’t sit well with SunTrust Robinson Humphrey analyst Jake Bartlett.

“The Sept. 19 national carne asada launch successfully drove incremental traffic, check and profits as we expected,” he wrote. “We were surprised that a product that was tested for four-to-five months, required new in-store training and was supported by a high-profile ad campaign is being offered for ~2 months.”

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Due to its success, SunTrust thinks Chipotle will want to make carne asada a permanent menu item. Chipotle wouldn’t comment directly, but said in a statement that it is “continuously looking for ways to meet demand.”

SunTrust also thinks queso blanco will be the next permanent addition to the menu.

SunTrust rates Chipotle stock buy and cut the price target to $900 from $920.

Comparative store sales accelerated with carne asada was launched, and sales accelerated at the end of quarter, with sales levels heightened into October, Hartung said on the call. Comp sales in December will be tough as the company laps the launch of delivery bowls last year.

“We wonder if Chipotle could run a promo or other offer to help comp the difficult December comp and maintain one-year momentum in 2020,” wrote UBS.

Chipotle reported comp sales growth of 11%, a figure that Hartung told MarketWatch is “unheard of for a company of our size.”

“With few signs of a near-term slowdown and expectations elevated, strong comps (around the high-single digits) are still needed as comparisons become more difficult beginning Q4 and into 2020, and we think solid flow-through must support 2020 earnings per share approaching $20.

FactSet is forecasting comp sales growth of 8.8% for the fourth quarter and 2020 EPS of $17.75.

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UBS has a sell rating on Chipotle shares with a $690 price target, up from $650.

Even with the abbreviated run, BTIG analysts led by Peter Saleh think Chipotle is tracking “back to peak unit economics.” Analysts think the focus on Chipotlanes, which allow customers to pre-order online and drive up to a designated window to pick up their meal, will provide a boost.

“Chipotlanes in 2020 will help drive sales volumes, margins and digital mix all higher given the likely superior economics of these units,” wrote BTIG, which reiterated its buy stock rating and $890 price target.

Hartung said on the call that Chipotle expects to have 60 Chipotlanes by the end of 2019. More than 80 restaurants are under construction and half of them will have Chipotlanes.

“[B]ased on the early success of Chipotlane, we shifted our real estate strategy to seek more sites that can accommodate Chipotlane,” he said on the call.

“Every time we make it more convenient to try Chipotle, customers respond,” he told MarketWatch.

Chipotle stock has rallied 94.4% over the past year while the S&P 500 index SPX, +0.00%   is up 13.2% for the period.