On Thursday, Chipotle (CMG) unveiled its third-quarter earnings results after the close of the market, outperforming expectations in terms of earnings and same-store sales.
Following the report, the company’s stock initially surged by 5% in after-hours trading, although it later retraced some of those gains.
The company reported a notable 11% growth in revenue, reaching $2.47 billion, fueled by a 5% increase in same-store sales, slightly surpassing estimates, which had projected a growth of 4.37%. Chipotle also exceeded expectations on its bottom line, with adjusted earnings per share registering at $11.36, as compared to the $10.51 anticipated by analysts.
Less impressive performance of Garlic Guajillo
The performance of the quarter was bolstered by the reintroduction of Carne Asada in mid-September, a fan favorite from 2019. This limited-time offering outperformed the “less impressive performance of Garlic Guajillo” during the same period in 2022, as noted by Wedbush analyst Nick Setyan in a message to clients. Nevertheless, it’s worth noting that last year’s Q3 boasted a same-store sales growth of 7.6%.
During a call with analysts, CFO Jack Hartung acknowledged the challenges posed by inflation over the past year, stating, “The consumer is clearly under pressure with inflation over the past year. We continue to do well not just across our income levels, but with the lower income, they’re holding up really well.” The operating margin for the quarter was slightly higher, standing at 16.0%. Digital sales constituted 36.6% of the total revenue, a slight decrease from the previous quarter’s 38%.
Although Chipotle faced increased food costs, including higher prices for beef and queso, these expenses were mitigated by the price hikes implemented the previous year. The company has also recently announced plans to raise menu prices for the fourth time in two years.
Looking ahead to April, Chipotle is preparing to address rising costs as California’s minimum wage is set to increase to $20 due to the FAST Act. CFO Jack Hartung noted, “We haven’t decided where we will land … but we are definitely going to pass this on,” estimating that the increase could range from mid-to-high single-digit percentages.
The outlook for the burrito chain’s growth remains promising. According to its guidance, it anticipates restaurant sales growth in the mid to high-single-digit range for the fourth quarter.
Additionally, Chipotle enjoys favor on Wall Street, boasting 24 Buy ratings, 10 Holds, and no Sells as of Thursday. Year-to-date, Chipotle’s shares have surged by approximately 32%, significantly outperforming the S&P 500 (^GSPC), which has posted an 8% gain.
Positive Financial Performance
The company is regarded as a “top pick” due to the strength of its “fundamental story,” marked by accelerating unit expansion and improved profit margins, as highlighted in a note from Deutsche Bank analyst Lauren Silberman.
She remarked, “There is a rarity in finding a high-quality, US-based company with a healthy balance sheet, robust fundamentals, and potential for positive financial performance.”
During the third quarter, Chipotle inaugurated 62 new restaurants, with 54 of them featuring its drive-thru feature, Chipotlane. By the end of the third quarter, the company had established more than 3,300 restaurants. Over the long term, Chipotle has plans to operate a total of 7,000 restaurants in North America.
For the year 2024, the company has outlined intentions to open between 285 to 315 new locations.
