Chipotle Surges to Record High after Crushing Earnings Estimates

Shares of burrito slinger Chipotle (NYSE: CMG) have surged to fresh all-time highs on Wednesday after the restaurant chain reported strong second quarter earnings. As pandemic restrictions ease across the United States, customer traffic is returning while consumers shrug off price increases.

As of 11:40 a.m. EDT, the stock was up 11%.

A blockbuster quarter

Revenue in the second quarter jumped 39% to $1.89 billion, slightly ahead of the consensus estimate of $1.88 billion in sales. Comparable restaurant sales climbed 31.2%, while Chipotle’s agile shift to digital sales during the pandemic continues to pay off.

Digital sales increased 10.5% and comprised a whopping 48.5% of total revenue as people continue to leverage the convenience of ordering from their phones.

The company’s operating margin has recovered to 13% after temporarily dipping into negative territory a year ago due to lockdowns in mid-2020. That all resulted in adjusted net income of $212.8 million, or $7.46 per share. Wall Street analysts were looking for just $6.49 per share in adjusted profits. 

“We remain confident in our key growth strategies and believe they will help us achieve our next goal of $3 million average unit volumes with industry leading returns on invested capital that improve as we continue to add Chipotlanes,” CEO Brian Niccol commented in a release. “Strong restaurant level economics combined with significant restaurant growth should allow us to optimize earnings power for many years to come.”

Chipotlanes are the company’s drive-thru format and the company is currently investing in those types of locations. Of the 56 new restaurants opened during the second quarter, 45 stores included a Chipotlane.

Chipotle had said last month that it planned to increase menu prices by 4% in order to cover rising costs, particularly labor costs as the company is targeting an average hourly rate of $15.

On the conference call with analysts, CFO John Hartung said that the price bumps were “holding strong so far,” allowing the company to pass along costs to customers. Chipotle also benefited from lower beef prices, which helped expand gross margins.

In addition to the wage increases being politically popular, the move has helped Chipotle maintain a stable workforce at a time when many retail organizations are struggling to attract employees. Labor shortages have been impacting a wide range of sectors (including at some of Chiptole’s suppliers). 

“Through investing in our people, we have been able to maintain the stability of our workforce over the last two years,” Niccol added on the call. “Knowing that our people are the key to our growth, we have been diligent in our recruiting focus since the start of the year.”

What comes next

Chipotle’s guidance calls for comps to grow in the “low to mid double-digits range” in the third quarter. For the full year, the company expects to open roughly 200 new restaurants. The Delta variant continues to create ongoing macroeconomic uncertainties around the world, but Chipotle is confident in its forecast as long as current trends continue.

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Evan Niu, CFA owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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