Chipotle Mexican Grill (NYSE:CMG) has had an amazing year. It's reporting record revenue, and its stock has climbed almost 80% year to date, hovering near all-time highs.

But if you open the lens for a wider look, the picture isn't as rosy. If you bought the stock on Oct. 1, 2015, just weeks before the company's first major public E. coli event and the subsequent norovirus outbreak months later, your investment would only be up by single-digits.

CMG Chart

CMG data by YCharts.

Part of the reason is that store-level metrics are still not where they were four years ago. Let's dive into this burrito maker's recovery and see how far it has to go to reach its performance before E. coli.

Two steak burritos on a plate

Has this burrito maker gotten its mojo back? Image source: Getty Images.

Achieving record revenue growth

The company's top line has largely recovered since its first major public E. coli event. Sales figures for the last two quarters have been the two highest in the company's history. Both the comparable same-store growth and revenue growth last quarter landed in double-digit territory:

Metric

Q3 2015

Q3 2016

Q3 2017

Q3 2018

Q3 2019

Revenue

$1.217 billion

$1.037 billion

$1.128 billion

$1.225 billion

$1.404 billion

Revenue growth (YOY)

12.2%

(14.8%)

8.8%

8.6%

14.6%

Comparable same-store sales growth (YOY)

2.6%

(21.9%)

1%

4.4%

11%

Number of stores at quarter-end

1,931

2,178

2,374

2,463

2,546

Data source: Company filings with the Securities and Exchange Commission. YOY = year over year.

But the most recent quarter's $1.4 billion in sales was a tepid 15% higher than in the same quarter four years ago. An additional 615 restaurants have helped grow the top line, but have watered down the restaurant-level economics.

Average restaurant sales are slowly recovering

Chipotle defines average restaurant sales as "the average trailing 12-month sales for restaurants in operation for at least 12 full calendar months." This gives investors a clear picture of the value of burritos sold at the average store without having to adjust for seasonal impacts.

Bar graph of average restaurant sales for each Q3 from 2015 to 2019. Q3 2015 sales were $2.53 million, then dropped to $1.91 million the following year. The number recovered only to $2.15 million in the most recent quarter.

Data source: SEC filings. Chart by author. Figures are in millions of dollars.

This metric has improved steadily but is still 15% below the peak reached in the third quarter of 2015. Surpassing that rate would take almost two more years, assuming Chipotle could maintain its recent 11% same-store-sales growth rate. But that's not taking into account a number of headwinds that might make this more difficult.

With 2,505 restaurants located throughout the U.S., Chipotle has stores in most metropolitan areas already. When adding stores, the new restaurants could draw customers who normally visit nearby locations, which doesn't contribute to overall growth. The company will need to focus on states where it doesn't already have a strong presence, such as Mississippi, Vermont, and Wyoming, that each only had one store at the end of 2018, or one of the other 16 states where there's just one restaurant per 250,000+ people.

Unfortunately, success in these locations is not guaranteed, and the company may have to work harder (i.e. spend more money on advertising) to achieve good store traffic. Certainly, store expansion is something for investors to keep an eye on.

Lastly, management is starting to put roots in areas where it hasn't in the past. Its recent annual report described potential expansion into locations such as "smaller or more economically mixed communities, highway sites, outlet centers, and ... airports, food courts, or on military sites." Even though some of these spots may be great, the company doesn't have much experience operating in these new communities. And these stores will likely have smaller footprints and have lower traffic, which drags down the overall average per store.

As average-store sales have degraded, they've taken store-level margins with them.

Store-level margins will benefit from higher traffic

Running a brick-and-mortar retail or restaurant business location comes with a considerable amount of fixed costs, such as staffing and occupancy costs. Employees must be present whether or not customers come in. Rent and utility bills arrive monthly, regardless of traffic. A high number of paying customers helps offset these costs and makes a location's margin better.

In 2015, Chipotle's restaurant margin was the envy of the "fast-casual" industry. This metric is the percentage of revenue left over after store-based costs are removed from the top line. Store operating costs in Q3 of 2015 were 72% of revenue, leaving store margin at 28%. With reduced average store revenue, it's been difficult for management to get its margin back to the enviable range. Costs have been slowly coming back into line, but are still 7 percentage points away from the mark before E. coli.

Stacked bar chart of store-level operating costs as percentage of revenue for each Q3 from 2015 to 2019. Q3 2015 costs were 72% of revenue, then increased to 86% the following year. Last quarter the number improved to 79%.

Data source: SEC filings. Chart by author.

There are some headwinds from food costs (specifically avocados and carne asada) and labor inflation, but on the last earnings call, chief financial officer Jack Hartung indicated that recovering historical margins is possible:

As you move from $2.1 million to $2.2 million to $2.3 million up to, if we get back to our peak volumes of $2.5 million, we're still confident that we'll be right in that same kind of margin range of like a 25%. So we think the flow-through so far is pretty much right on track.

These metrics aren't yet what investors are hoping for, but the momentum behind the move to digital ordering will help.

Online ordering is fueling the recovery

Digital ordering is helping the company improve both revenue and margin. Average checks through its online app are higher than from in-store transactions, and are growing faster. Because online orders can be built up to 40% more efficiently with a second make line, the margin from customers who don't wait in line is also better.

Metric

Q3 2016

Q3 2017

Q3 2018

Q3 2019

Digital sales as a percentage of revenue

6%

8.5%

11.2%

18.3%

Revenue from digital orders

$62 million

$96 million

$137 million

$257 million

Data from Chipotle's news releases and earnings calls. Calculations by author.

The total transaction value through the store's app grew 88% last quarter to a record 18.3% of revenue, and CEO Brian Niccol doesn't yet see a ceiling on how high this penetration can go.

It's been less than a year with Niccol at the helm, and the company has made significant progress in getting customers back to buy burritos. Chipotle is putting the E. coli events behind it, and shareholders should keep an eye on its store-level metrics to judge its progress.