Chipotle Sizzles After Earning Shares, Earnings Beat

Chipotle Mexican Grill dominated the first quarter. The company beat revenue and earnings expectations, sending shares higher in after-hours trading on Tuesday.

The company posted adjusted earnings of $10.50 per share, topping estimates of $8.95 per share. Sales of $2.4 billion rose 17.2% year-over-year and topped $2.3 billion, according to analysts tracked by FactSet.
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Comparable restaurant sales rose 10.9% in the quarter, better than forecasts for an 8.6% increase.. Restaurant-wide margin was 25.6%, up 4.9 percentage points year over year.

Chipotle (ticker: CMG ) forecasts second-quarter and full-year comparable sales to grow in the mid- to high-single-digit percentage range. That’s largely in line with expectations — analysts forecast comparable sales to rise 5.8% in the second quarter and 6.1% in fiscal 2023.

The company also plans to open 255 to 285 new restaurants by 2023. New openings helped drive revenue growth of 17.2% in the quarter, the company said in a statement.

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Chipotle’s strong first quarter was welcome news for investors, with shares rising 7.7% to $1,916.50 in after-hours trading on Tuesday.

The current quarter was a big focus from the company’s fourth-quarter earnings, which is one reason the stock rallied below expectations. CEO Brian Nicol attributed the change in performance to the company’s strategic plan, called Project Square One, which aims to get the company back to basics and improve business fundamentals after the pandemic.

“We’ve had to re-establish standards and training because we’ve done a lot of, I call it, work for the duration of COVID,” Nicholl said on a call. Baron’s.

“It’s going to take some time to reset against those standards, but, you know, I’ve definitely seen good improvements in fundamentals,” he added.

The company’s results were also boosted by higher prices. Chipotle has raised prices about 4% so far this year, which Nichol calculates could rise to about 5% by the end of the year. These menu hikes help the company offset higher costs for labor and food inflation.

“Our brand is so strong that we have the pricing power to drive additional pricing,” said Nicole. “But you know, it’s one of those things we like to take as a last resort.”

While other restaurant chains and retailers have warned that consumer demand may weaken, Chipotle’s first quarter sets the stage for a strong year ahead.

Those concerns don’t apply to Chipotle. The company saw solid demand across all income groups, including an increase in purchases by low-income consumers, which had held back last year. Low-income shoppers accounted for 35% to 40% of Chipotle’s sales, so this increase is certainly a welcome one. Chipotle’s core demographic—high-income consumers—was healthier, Nichol added.

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On the revenue side, analysts expected a strong quarter due to the introduction of new menu items and digital sales capabilities. The chain is outperforming its fast-casual restaurant competitors in terms of the number of people visiting its stores. Information From Placer.ai, a call traffic tracking company. For example, during the week of March 27, Chipotle’s traffic was up 9.7% from a year earlier, while the fast-casual category saw a 1.5% decline.

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Many analysts consider Chipotle a great long-term investment. Baird analyst David Tarantino estimates Chipotle can grow earnings per share by 20% over the next three to five years, continuing to improve margins as inflation challenges begin to ease. These growth projections, combined with the company’s healthy balance sheet, make sense for the stock to trade at a premium valuation, he wrote.

Currently, the stock is selling for 40 times expected earnings per share for the next 12 months, according to FactSet. Starbucks’ P/E ratio is 28.9, and the figure for McDonald’s is 28.9

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(MCD) is 26.6.

“CMG can show strong sales momentum and healthy earnings growth in the coming years, and we believe this profile will help support positive investor sentiment on the stock,” Tarantino wrote ahead of the earnings release.

Write to Sabrina Escobar at [email protected]

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