Fast-casual restaurant chain Chipotle Mexican Grill (CMG 0.86%)reported third-quarter earnings on Tuesday, Oct. 29, that missed top-line estimates but exceeded on the bottom line. The company reported adjusted earnings per share (EPS) of $0.27, surpassing the analyst consensus estimate of $0.25. Revenue reached $2.8 billion, marking a 13% increase from the prior year, though it fell slightly below the projected $2.82 billion.
The quarter showcased Chipotle's ability to effectively implement strategic growth initiatives, though rising costs are a factor to watch closely.
| Metric | Q3 2024 | Analysts Estimates | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $0.27 | $0.25 | $0.23 | 21.7% |
| Revenue | $2.8 billion | $2.82 billion | $2.48 billion | 13% |
| Operating margin | 16.9% | - | 16% | 90 bps |
| Net income | $387.4 million | - | $313.2 million | 23.7% |
Source: Chipotle Mexican Grill. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. bps = Basis points.
Business Overview
Chipotle Mexican Grill operates more than 3,600 fast-casual restaurants globally, focusing on serving responsibly sourced, high-quality Tex-Mex style food. Key to its success is the "Food with Integrity" commitment, highlighting its dedication to sustainable practices. Chipotle strategically leverages technology to enhance customer experience, primarily through its app and innovative drive-thru concept, the Chipotlane.
Recent strategies include expanding restaurant locations and deepening engagement with digital platforms. This dual focus is crucial to Chipotle's market share increase and sales growth. Management emphasizes innovation, efficient practices, and a strong corporate culture as central to maintaining competitive advantages.
Quarterly Highlights
The third quarter saw Chipotle prioritizing expansion with 86 new restaurant openings, most featuring Chipotlanes. This drive-thru model not only enhances convenience but increases sales margins. Digital sales now account for 34% of revenue, showing continued strength in digital engagement.
Innovative menu offerings, such as the limited-time Smoked Brisket, increased transaction growth. Moreover, Chipotle maintained a steady labor cost structure at 24.9% of revenue, balancing wage increases. However, rising ingredient costs led to a slight decline in restaurant-level operating margins to 25.5% from 26.3% a year earlier.
From a financial standpoint, Chipotle's operating margin improved to 16.9% from 16%, illustrating enhanced efficiency. Revenue for the nine months ended September 2024 reached $8.47 billion, up 15.1% year over year.
Management pointed towards one-time cost impacts, such as food inflation affecting avocado and dairy prices. Increased wage bills due to expansion into high-cost labor states also presented challenges. However, Chipotle effectively managed these pressures through strategic operational adjustments.
Looking Ahead
Chipotle's management maintained its full-year forecast of comparable restaurant sales growth in the mid- to high-single digits for the year, aligning with ongoing consumer behavior trends. It plans to open a total of 285 to 315 new locations for the full year, and 315 to 345 new company-operated locations in 2025. The company expects at least 80% of new locations will include Chipotlanes, continuing its focus on enhancing customer access and convenience.
Future performance is expected to benefit from sustained menu innovation and technological investments in operations. Despite inflationary pressures, Chipotle's strategic orientation points towards stable growth. Investors should watch for shifts in food costs and efficiency improvements as these factors will significantly impact future profitability.
