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Chipotle Q3 Earnings: What to Watch

By Daniel Sparks - Oct 11, 2019 at 9:36AM

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After an impressive first half of the year, the bar is high for the fast-casual burrito chain. Can Chipotle impress investors once again?

So far this year, Chipotle Mexican Grill (CMG 1.06%) has managed to impress investors. The stock has soared about 90% year to date. But the company's growth story will be put to the test again in less than two weeks, when the fast-casual burrito chain reports its third-quarter results.

The pressure is on. Will Chipotle keep up its strong same-store sales growth once again? Can digital sales keep skyrocketing higher? Ahead of the third-quarter update on Oct. 22, here's a preview of some of the key themes for investors to check on.

Chipotle burrito, chips, and guacamole

Image source: Chipotle.

Same-store sales growth

In the aftermath of Chipotle's food safety issues several years ago, the company's same-store sales growth turned negative and weighed on the fast-casual restaurant's top line. But as these issues faded into the past and the company executed well under new leadership, this key metric reaccelerated, helping Chipotle's year-over-year revenue growth rates return to double-digit territory.

Defined as the change in period-over-period sales at restaurants in operation at least 13 months, same-store sales is a key retail metric that gives investors insight into the health of a company's existing base of stores. This metric has accelerated recently, rising from 6.1% growth in the fourth quarter of 2018 to 9.9% growth in Q1 and 10% growth in Q2. Indeed, Q2 was the company's sixth quarter in a row of accelerating same-store sales growth.

In Q3, investors should look for robust growth in this key metric to continue. However, management's comments in the company's second-quarter earnings call suggest growth will moderate slightly.

"And as you think about the cadence [of same-store sales growth] for the remaining two quarters, remember that our comparisons get more difficult as the year unfolds," said Chipotle CFO John Hartung.

Digital sales growth

Serving as a key driver for Chipotle's strong same-store sales growth is Chipotle's impressive momentum in digital. Digital sales were up 99.1% year over year in Q2 and accounted for 18.2% of the quarter's sales. Further highlighting how rapidly digital sales have grown for Chipotle, the quarter's digital sales were equal to all of its digital sales for the entire year of 2016.

Key growth drivers in digital have been delivery, a streamlined mobile ordering pick-up process, and enhanced capabilities of its app and website.

While investors should expect growth in digital sales to decelerate as the company goes up against tougher comparisons, it will be interesting to see how significant this deceleration is.

How about that Carne Asada?

At the time of Chipotle's second-quarter earnings call, the company's new Carne Asada menu item was nearly done with the validation process before rolling out to its stores. "This item is easy to execute operationally as unique flavor profile and is receiving terrific customer feedback in our test markets," said Chipotle CEO Brian Niccol at the time.

But as of Sept. 19, the protein menu option had rolled out nationwide. Investors should look for an update on how the new meat is performing -- and how it is impacting the company's financial results.

Stay tuned. Chipotle reports its third-quarter results after market close on Tuesday, Oct. 22.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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