03:27 PM EDT, 07/18/2024 (MT Newswires) -- Chipotle Mexican Grill ( CMG ) is expected to report "solid" same-store sales momentum for the second quarter, with revenue outperformance seen continuing through 2024 despite a tough macroeconomic environment, UBS Securities said Thursday.

The burrito chain is scheduled to report second-quarter results Wednesday. UBS expects comparable sales to have grown 9% amid contributions from transactions and pricing, partially offset by mix. Wall Street is modeling an 8.9% growth rate, the brokerage said in a note to clients. UBS pegs earnings at $0.32 a share for the quarter, compared with the Street's $0.31 view.

"Key traffic and sales drivers likely included benefits from Chicken Al Pastor, throughput gains, and digital and marketing," UBS analyst Dennis Geiger said. The brokerage expects second-quarter restaurant margin of 28.6%, compared with the Street's 28.3% estimate, aided by pricing, sales leverage and "solid" flow-through, the analyst wrote. "Cost inflation will likely remain manageable, even (with) impacts from (California) wage increases."

The company's marketing, loyalty and "solid" value perceptions are expected to support continued traffic momentum in the second half of the year even as trends are seen easing amid tough comparison, Geiger said. As avocado costs increase into the second half, Chipotle shouldn't be greatly affected by Mexican prices as it's mainly purchasing from Colombia and Peru in the ongoing quarter, according to the note.

The company's margin is likely to expand in the second half amid "operational efficiencies" and sales leverage despite expectations that no incremental pricing will be taken in the fourth quarter, UBS said. Overall, Chipotle is well placed for traffic momentum and sales outperformance through this year despite consumer spending headwinds, according to the note.

"We view Chipotle as one of the best positioned concepts to sustain sales momentum in a tough macro given customer brand affinity and a solid value for the money proposition," Geiger said.

The brokerage has a buy rating and a $70 price target on the company's stock. Chipotle shares were down 4.8% in Thursday late-afternoon trade.

"We believe upside to shares exists from solidly positive traffic momentum and opportunities for margin expansion despite (California) wage headwinds, as well as accelerating unit growth, (with) valuation now less demanding," the analyst wrote.

Last week, Chipotle appointed Adam Rymer as chief financial officer, effective Jan. 1, succeeding Jack Hartung, who plans to retire on March 31. Rymer serves as the company's vice president of finance.

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