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3 Catalysts for Chipotle in 2020

By Daniel Sparks – Feb 13, 2020 at 9:05AM

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Here's why the burrito chain could see more strong growth this year.

Chipotle Mexican Grill (CMG 1.75%) finished out 2019 with a bang. The company's fourth quarter featured 17.6% year-over-year growth in revenue as comparable restaurant sales increased at a double-digit rate and digital sales continued to soar. The fast-casual burrito chain's revenue and adjusted earnings per share both beat analysts' consensus estimates for the two metrics and management provided an optimistic outlook for comparable restaurant sales growth in 2020.

2020 does, indeed, look as if it could be a great year for the company. Not only will Chipotle's investment areas from 2019, such as mobile order pick-up shelves, an overhauled loyalty program, and a nationwide rollout of second make lines for digital orders continue to pay dividends this year, but the company has some more nascent initiatives that could contribute to 2020 as well.

Here's a look at three catalysts Chipotle has going for it, helping explain why investors are so excited about this growth stock.

Chipotle online order bag

Image source: Chipotle.

1. More Chipotlanes

One of Chipotle's investment areas in 2020 is the company's growing number of restaurants with drive-throughs, which management refers to as Chipotlanes. These drive-throughs are helping sales and margins at the company's stores.

"We continue to see overall digital penetration for Chipotlane restaurant in the high 20s, with the majority of this being driven by our highest margin, order ahead and pickup transaction," explained Chipotle CEO Brian Niccol in the company's fourth-quarter earnings call.

This penetration of digital sales for these restaurants bodes well for continued growth in digital sales as a percentage of total revenue. In Chipotle's fourth quarter, digital sales were up 78.3% but still represented only 19.6% of total sales.

During 2020, Chipotle plans to more than double its Chipotlanes.

2. Increased customer engagement

Another key initiative for Chipotle in 2020 is the company's effort to take advantage of the insights it's gaining through its digital rewards program. Now that the company has the tools in place to serve an influx of digital orders -- a successful rewards program with more than 8.5 million members, second make lines and mobile pick up shelves for digital orders, and increasingly more Chipotlanes -- management wants to build on this foundation in 2020.

"While in 2019 we focused on member growth, in 2020 we will not only further increase enrollment but, more importantly, look to optimize the use of database marketing to incent behaviors as we build out our CRM [customer relationship management] capabilities," said Niccol during the conference call.

3. A robust pipeline of new menu items

Chipotle's most recent major new menu item, carne asada, has proved to be a hit -- so much so that it had a materially positive impact on the company's strong 13.4% year-over-year growth in comparable restaurant sales during Q4.

2020 may similarly benefit from food innovation.

"As you think about 2020 and beyond, our goal is to continue introducing one to two new menu items on average per year. Our pipeline remains robust with queso blanco, quesadillas and beverages currently being tested in various markets," explained Niccol in the company's earnings call.

Indeed, Chipotle's new queso blanco recently made it through the company's stage-gate process and will soon roll out nationally as a replacement for its previous queso. Chipotle's current queso, which was launched in 2017, hasn't been well-received by customers and reviewers. Therefore, if the new queso proves to be a hit with customers, it could be a meaningful sales driver in 2020.

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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