Chipotle Shares Surge on Earnings Beat

Ticker Symbol: CMG

Chipotle Mexican Grill Inc, the cantina-styled restaurant chain, announced second-quarter earnings which broadly beat Wall Street estimates. Shares were trading up 12% in the morning session and are down 14.2% on a year-to-date basis versus the 16.7% decline in the S&P 500. The better-than-expected results come on the back of the company raising prices and strong adoption of its digital app.

Same-store sales, the critical key performance metric for restaurants, were up 10.1% year over year, but behind the average analyst expectation for an increase of 11.1%. Total revenue also missed targets, coming in at $2.21 billion for the quarter, up 17% year over year, but behind the $2.25 billion expected. The company is benefitting from a higher mix of middle and higher-income customers which has allowed growth to exceed that experienced by other fast-casual restaurant operators.

Adjusted earnings per share for the quarter were $9.30 higher than the expected $9.10. The restaurant margin was 25.2% in the quarter, compared with the average estimate of 25%. The restaurant also benefited from a change in the mix of its sales channels as more customers visited the physical store as opposed to ordering deliveries. Delivery fees generally eat into the margins at restaurants. However, rising wages and food costs, driven by the highest inflation in 40 years, weighed on profits.

Costs for packaging, beef and avocado were especially higher and offset increased menu prices. Importantly, Chief Executive Officer Brian Niccol said that the restaurant’s customers are proving to be resilient in the face of price increases, and demand remains robust. Furthermore, he said that the company would be increasing the prices of its products again in August. The company also continues to experiment with its menu and has been developing new items that have a good track record with its customers.

Management said that it sees new restaurant openings for the year to be roughly between 235 to 250 restaurants. Analysts were expecting 248 openings. The average restaurant had sales of $2.75 million, higher than the $2.47 million reported a year ago. Finally, the company said it expects comparable store sales to grow in the mid to high single digits for the third quarter and that restaurant margins should remain consistent at the 25% level.

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