Chipotle (CMG) reported its third quarter earnings results on Thursday after the market close, beating estimates on its earnings and same-store sales.
Its stock jumped 5% after the report in extended trading, before paring back those gains.
Revenue grew 11% to $2.47 billion as same-store sales increased 5%, slightly higher than estimates of 4.37%. The company also posted a bottom-line beat, with adjusted earnings per share coming in at $11.36, compared to the $10.51 expected by analysts.
The quarter is boosted by the return of the Carne Asada in mid-September, a fan favorite in 2019. The limited-time offering laps the “lackluster performance of Garlic Guajillo” this time in 2022, Wedbush analyst Nick Setyan said in a note to clients. However, last year’s Q3 boasted a same-store sale growth of 7.6%.
“The consumer is clearly under pressure with inflation over the past year,” CFO Jack Hartung said on a call with analysts. “We continue to do well not just across our income levels, but with the lower income, they’re holding up really well.”
Operating margin for the quarter was slightly higher, up 16.0%. Digital sales made up 36.6% of total revenue, lower than last quarter’s 38%.
Increasing food cost, including higher prices for beef and queso, were offset by price hikes taken last year. The company recently announced plans to raise menu prices again for the fourth time in two years.
Next April, Chipotle will be looking to bump costs again, when California’s minimum wage moves up to $20 as a result of its FAST Act.
“We haven’t decided where we will land … but we are definitely going to pass this on,” said Hartung, who estimated the increase could be in the mid-to-high single digits percentage wise.
The earnings rundown
Here’s what Chipotle reported, compared to Wall Street estimates per Bloomberg consensus data:
Net sales: $2.47 billion versus $2.47 billion expected
Adjusted EPS: $11.36 versus $10.51 expected
Same-store sales: 5.0% versus 4.37% expected
Operating margin: 16.0% versus 15.4% expected
Net addition of locations: 62 versus 67.14
The burrito chain’s growth prospects remain intact. It’s expecting restaurant sales growth in the mid- to high-single-digit range for Q4, per its guidance.
It’s also liked among Wall Street, with 24 Buys, 10 Holds, and no Sells as of Thursday. Year to date, Chipotle shares are up around 32%, handily beating the S&P 500 (^GSPC)’s 8% gain.
It’s considered a “top pick,” based on the strength of its “fundamental story” with accelerating unit growth and margin expansion, according to a note from Deutsche Bank analyst Lauren Silberman.
“There is a scarcity value for a high quality, US-based company with a clean balance sheet, strong fundamentals, and upside to numbers,” she said.
In Q3, Chipotle opened 62 restaurants, with 54 including its drive-thru feature Chipotlane. At the end of Q3, there were more than 3,300 total restaurants. Long term, it plans to operate 7,000 restaurants in North America.
In 2024, the company plans to open 285 to 315 new locations.
