Chipotle Mexican Grill (CMG, $83.80, up $2.14) missed earnings by a penny and it paid for in after-hours trading last night. The stock was down $9, or 10%, to $75. Other than missing by a penny, it was an earnings report that deserved an A+.

For 2Q, Chipotle reported an increase of 23% as the company earned $24.5 million, or 74 cents a share. Wall Street was looking for 75 cents. Chipotle also disappointed on the revenue side as they company reported $341 million while the Street was looking for $344 million.

Same-store sales were up 7% for the quarter and it expects more of the same for the rest of 2008. The company also said it plans to open 130 to 140 new restaurants during the year which shows that its brand continues to grow despite the tough economy. As consumers continue to change their spending habits to fight high everything prices, Chipotle has become the cheaper way to go out and have an incredibly good meal and at a cheap price. That seems to be working despite the increases in menu prices because they are getting more customers.

Of course, we had a short position in Chipotle when we bought the August 70 puts (CMGTN, $1.40, down $0.55) which were out-of-the-money. They still are but all we are looking at is a one or two-day trade. The after-hours action was a good indicator of where the stock is headed when the opening bell rings this morning. If Chipotle opens around $75, the puts could be worth $2.00-$2.50 which is all we are looking for. The puts were profiled at $1.60 in the blog so a 50% gain would be $2.40. If we can get an open on the puts right there or a little higher, set stops at $2.35-$2.40.

Again, you may have to watch the action a little bit today to get a good feel on where Chipotle may trade on Friday and I’ll try an update the situation later today in another blog. The magnet I was telling you about pulled Chipotle back in the $70’s, let’s just hope it holds when trading begins.

Rick Rouse
Rick@OptionsMentoring.com

11:15AM

Chipotle Mexican Grill (CMG, $102.95, down $6.95) reported higher-than-expected profits for the quarter yesterday as new restaurant openings fueled higher sales. Income was $17.3 million/ $0.52 a share, up from $12.4 million/ $0.38 a share from Q107. Revenue came in at $305.3 million, up from $235.5 million. Wall Street had forecast $0.48 a share on $298.4 million in revenues.

The company beat by four cents and also reported a 10% increase in sales at stores open at least a year which is the true measure of growth. While most restaurants would be thrilled to be in the 7%-8% range given the current economic environment, Chipotle is posting double-digit growth. Wow. Impressive results to say the least but the stock is selling off hard today (-6%) and is down $12 from from my 4/22 blog.

The May 105 puts (CMGQA, $7.17, up $1.47) were profiled at $4.50 when I noticed the option activity building and are now up about 60%. Great return but this would have been a risky trade by buying only puts going into earnings, especially given the good results. However, people do it all the time. Some win, some lose but that’s the chances inexperienced option traders will take.

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Rick Rouse
Rick@OptionsMentoring.com