Profit season is almost here. Companies operating on a calendar year completed their second quarters last week, leaving the accounting and finance teams to bind the quarterly books and prepare their earnings reports. It’s fair to say that 2020 and 2021 have provided investors with incredibly interesting earnings reports, as they have provided timely windows into corporate operations during a time of unique circumstances and significant uncertainty.
As the US economy finally begins to look something closer to normal, the second quarter of 2021 was still full of its own unique circumstances, including global sourcing and logistical challenges, high unemployment rates. and unusual comparisons a year ago. Two companies to watch as we start unpacking the quarter and try to figure out how organizations are doing Mexican Grill Chipotle (NYSE: CMG) and Netflix (NASDAQ: NFLX) – two stocks that have jumped sharply over the past month. Can these two flagship stocks deliver results that meet the high expectations of investors?
Here are some key things investors should watch out for when these two flagship companies report earnings.
Chipotle: Are digital sales continuing to increase?
Chipotle saw huge sales growth in the first quarter as the company enjoyed both good business execution and easy comparison. Part of the first quarter of 2020 was negatively impacted by the challenges posed by the onset of the COVID-19 pandemic in the United States. First quarter 2021 revenue increased 23.4% year-over-year, helped by 35 net new stores and a 17.2% increase in same-store sales.
But the particularly impressive metric for the quarter was the 134% year-over-year increase in digital sales that Chipotley served. This places total digital sales at 50% of total sales during the period. Investors should look to see if Chipotle was able to maintain this strong digital momentum in the second quarter. Of course, it’s reasonable to expect digital sales growth to decelerate in the second quarter, as the company will face a period in 2020 when lockdowns from COVID-19 mean more than half sales took place digitally. Digital sales grew 216% year-over-year in the second quarter of 2020, accounting for 61% of total sales.
Nonetheless, the company’s strong digital momentum suggests that Chipotle is still able to record record digital transactions in the second quarter.
Chipotle will release its second quarter results after market close on July 20.
Netflix: can it overcome difficult compositions?
By declaring its profits on the same day as Chipotle, Netflix faces some extremely difficult comparisons a year ago. Subscriptions to the streaming TV service increased in the second quarter of 2020 as people searched for ways to be entertained at home. Netflix added more than 10 million new subscribers during the period, bringing the total number of subscribers in the first half of 2020 to nearly 26 million. For context, Netflix added just 28 million subscribers in the whole of 2019.
Netflix management believes that much of the demand for streaming has been advanced through 2020, which is why Netflix only added 4 million subscribers in the first quarter of 2021. Additionally, the company is not targeting than one million new subscribers in the second quarter of 2021.
But investors should also look to management’s guidance for the third quarter of 2021, as investors are likely to be hoping for more normalized growth during the period.
Investors can find earnings reports for both companies on their investor relations web pages after the market closes on Tuesday, July 20.
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