Chipotle sizzles to earnings beat, Boston Beer posts Q3 loss on dwindling seltzer sales, Beyond Meat lowers revenue forecast

Yahoo Finance's Brian Sozzi, Brian Cheung, and Julie Hyman break down how Chipotle, Boston Beer, VF Corp, and Beyond Meat are faring in Friday’s market.

Video transcript

JULIE HYMAN: We are just a few minutes from the opening bell on this busy Friday morning for earnings. Chipotle, we're showing that there because that company reported after the close of trading yesterday, you can see beat on the top and bottom line. Same-store sales up 15% for the company. And remember, Chipotle's been raising prices. It raised them as much as 4% earlier in the year.

When we've talked to the company, they've talked about taking that consistent price increase. And Chipotle, by the way, is one of the companies that was doing that even pre-pandemic, right. Chipotle has consistently sort of raised prices here and continues to do so. Brian Sozzi, it's interesting that we're not seeing the company be rewarded for this quarter. What do you think is going on?

BRIAN SOZZI: Yeah, of course, they have pricing power. You see those portion sizes at Chipotle? Come on, Julie. I mean, those are just ginormous. I'll pay $20 for a bowl of it.

JULIE HYMAN: You get two meals out of it.

BRIAN SOZZI: Yeah, that's one way of looking at it. Well, look, you're seeing the stock a little under pressure here. And just catching the vibes on the Street, I think there's some disappointment in terms of analysts on their guidance for the fourth quarter from a two-year stack perspective and that it might slow down in the fourth quarter. That's just all really gibberish.

I think the bottom line is that the quarter has started very strong for Chipotle. They've told you sales could grow more than double digits in the fourth quarter. That is very good. They're also telling you that they have raised prices, to your point, Julie, and sales are not falling off a cliff.

And yes, while they are having some labor shortages, like we've heard from Domino's and other restaurant chains, still the fundamentals of Chipotle are strong. Also, they teased, I think, a more aggressive expansion into Western Europe coming up very soon. So all those things were good, at least as far as I'm concerned.

BRIAN CHEUNG: And what's been interesting is that we've been talking about price inflation for the raw materials that businesses across the industries have really faced, but Chipotle actually saying on their earnings call that they didn't feel it was that bad. Yes, prices increased, but it was more in the mid-single digits instead of in the double digits, what they said could have been a possibility in the quarter. And despite all of that, they were still able to raise prices, so margins should look better.

And what is interesting, too, that I think is a bright spot in this earnings report is that their digital sales growth increased year-over-year. And I think when you take a look at digital sales, that's very interesting to see because obviously in those pandemic-ridden days where everyone was going to digital, you do wonder if some of that was going to switch back to a more pre-COVID 2019 looking type of statistic. But they were still able to get, from 2020 to 2021, 8.6% year-over-year growth in their digital sales.

I think what is interesting is that if anything, they said the supply chain issues are really in their ability to build new stores. They said that subcontractor labor shortages are actually making it a little bit more difficult to open up new properties as they try to keep that eye on expanding other new stores in the hundreds, really. So I think that will remain a story for Chipotle in the quarters to come.

JULIE HYMAN: Yeah, and we're going to talk to CFO Jack Hartung about all of this. I also have to wonder if Chipotle was sort of more used to rising prices than some of its competitors. A, it tended to already have higher average wages than many other fast food companies and fast casual companies and also had to contend with some higher ingredient prices. And remember, has contended with shortages in the past, too, of some of the meat it sources, as well as things like avocados at various times.

We've got stocks opening up. There was the opening bell on this Friday morning. Our opening bell coverage is brought to you by PIMCO. As we see stocks open here, we've got a downward bias now for all three major averages, although for the Dow it is minute, just two points here. The S&P and the NASDAQ taking a little bit of a hit as well, the NASDAQ perhaps more because of those big slumps in companies like Intel and Snap.

But want to get to another mover that just came out not too long ago, Beyond Meat coming out with an update on its third quarter. So this is not technically the company's earnings report. It is a warning about its third quarter earnings report. Third quarter net revenues going to now be around $106 million, the company said in a statement, instead of $120 million to $140 million before.

So it was already expected to decelerate quarter-over-quarter, but now this is worse than expected, and they are citing multiple factors in this release. And a lot of them are sort of very specific, a decrease in retail orders that persisted longer than expected from a Canadian distributor. But Brian Sozzi, they also mentioned the continuing effect of the Delta variant on demand in restaurants.

BRIAN SOZZI: I'm still emotionally digesting this one, guys. This is not the norm release that I have seen from Beyond Meat in recent years. I can't think of a time when they came out and pre-warned ahead of their results. Not the norm.

But yes, to your point, Julie, they're calling out labor shortages as potentially impacting their business. I would imagine maybe that is restaurant labor shortages, perhaps some labor shortages in the retail sector. You can't get those shelves restocked to meet demand. But there's a lot going on here. And I'm not surprised to see the market's first reaction to aggressively sell off the stock.

JULIE HYMAN: Yeah, definitely not. Look at that year-to-date chart, by the way, down about 26%, as perhaps some of the big rollouts that investors were expecting from Beyond Meat have not really materialized. Speaking of something else that has not materialized and has really caught the liquor industry flat-footed has been the waning demand for hard seltzer, which, you know, last summer seemed like it was going to be the next huge thing.

And it's big. It's just not as big as these guys had been. And so that really is creating big problems for Boston Beer, which makes Truly hard seltzer. Look, this was so eye-popping this morning, I had to check this number twice. Our producer who made the graphic had to check it, because yes, the company posted a loss that wide versus an almost commensurate profit gain that analysts were anticipating. Brian Cheung, this is a big challenge for this company.

BRIAN CHEUNG: Yeah, well, if anything, what's interesting is that the stock is only down, I believe it's 3% in the first few minutes of trading here. And people might be wondering when you post a miss that bad on the bottom line, how is that not more? And I think it's mostly because the decline that we've seen in hard seltzer was felt earlier in the summer.

I mean, if you take a look at a six-month chart, I believe it is, it's down 60%. Most of that drop was in July when we saw that hot girl summer didn't coincide with the return to hard seltzer consumption that maybe people had anticipated in 2019 looking forward to the 2020 summer when no one knew a pandemic was going to happen. But apparently with the pandemic subsiding, it's still not coming back.

The first sentence in the release was literally, quote, "The unexpected rapid slowdown of hard seltzer category growth this summer significantly impacted our business." Get this, they had $102.4 million charge directly related to the slowdown in seltzer, and that involved just full-on destroying inventory. You're not hearing about that in this economy, people destroying inventory, despite the fact that demand for basically everything across the board is off the charts right now.

So I feel like this is one interesting thing that's going to be a story for SAM because they've really ramped up a lot of their production for other types of Truly lines. There's supposed to be a holiday pack coming out. I certainly won't be trying that. And then also next year, you look forward to that PepsiCo collaboration with the Mountain Dew hard seltzer, which I could imagine Brian Sozzi will probably consume, if no one else is going to consume. So I don't think they should worry about destroyed inventory. Brian will drink it all.

BRIAN SOZZI: Brian, how do they destroy hard seltzer inventory? What, do they just send you a couple cases to your crib?

BRIAN CHEUNG: Yeah, no. They pour it in the Atlantic Ocean because it tastes bad, man. It really tastes bad.

JULIE HYMAN: I mean, considering--

BRIAN CHEUNG: I don't even like regular seltzer.

JULIE HYMAN: Considering the aluminum shortage that we're seeing, I certainly hope they're recycling those cans and at least getting something out of it. Two more things I--

BRIAN SOZZI: OK.

JULIE HYMAN: --just quickly want to mention when it comes to this story. First of all, seltzer sales are not declining, which is kind of fascinating here. With the number this bad, you would think they'd be declining. They're not. They're just growing at a slower rate than the company had planned for.

They just made too much of this stuff. The company says Truly sales are still going to rise 20% to 25% year-over-year for the full year. So that, to me, is really interesting.

Secondly, the company's still coming out with a forecast for the full year, but it is a wacky forecast, $2 to $6 a share in profit. That is an unusually wide forecast coming from a company. And even that is kind of like, eh. The actual 2021 earnings, the company says, per share could vary significantly from the current projection. So I'm not sure why they bothered to give a forecast at all.

Finally this morning, when we're talking about the earnings, let's talk about VF Corp, the big clothing manufacturer, that company coming out with earnings that fell a little bit short of estimates, as did sales, even though, as I look across their various product lines, they saw decent gains, double-digit gains in North Face, in Timberland, in Dickies. Vans only up 8%. But as you guys look at these numbers here, Sozz, what stands out to you?

BRIAN SOZZI: Yeah, I'll be quick here because I see our friend Marc Bitzer waiting in our digital green room here. One thing that absolutely stood out to me, it's the wholesale business. VF Corp saying supply chain challenges have caused a hiccup in their wholesale business or, in other words, the business that goes to department stores or off-price department stores.

The company lowered its sales guidance for this year in its outdoor segment, that is The North Face business and their active business, also slightly lowered their sales outlook for that. Off of this, you're probably going to see weakness in PVH, that's Phillips-Van Heusen, also Polo Ralph Lauren. They're essentially the same businesses, just obviously different brands.

JULIE HYMAN: Whew. All right. We're all taking a breath here after all of these earnings. But finally, just want to tell you how Snap is trading and Intel after those companies' numbers that we wrapped at the top of the show. I said that those two were weighing on the NASDAQ here this morning. That continues. Snap down by 20%.

Intel seeing some continuing disappointment there as well. And obviously that's a heavy weight too. Those shares down about 11 and 1/2%, so steep declines for those companies. Also, we've got the new Valkyrie Bitcoin futures ETF, BTF the ticker on that, and it's actually trading a little bit lower as we get underway this morning. Maybe all of the demand was hoovered up by the ProShares ETF, but we're going to keep watching that.