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Chipotle Stock: Setting the Standard for Restaurants During the Coronavirus Downturn

By Daniel Sparks - Apr 24, 2020 at 7:33AM

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The fast-casual company's digital investments are proving to be great assets as the company navigates COVID-19 headwinds.

When Brian Niccol joined Chipotle Mexican Grill (CMG 1.34%) as CEO in early 2018, he quickly redirected more of the fast-casual restaurant's efforts toward digital. Under Niccol's helm, Chipotle added second makelines for digital orders, mobile-order pick-up shelves, a digital loyalty program, and drive-thrus to solicit more consumers to order ahead. But no one could have foreseen just how important these investments would prove in early 2020 when COVID-19 totally disrupted retail and temporarily eliminated dining inside restaurants.

Today, Chipotle's recent digital investments are helping the company set the standard for managing headwinds during the coronavirus pandemic. Sure, Chipotle's sales are still taking a hit during this uncertain time, but strong performance in digital is helping mitigate the damage.

Man with a remote control in his hand sitting in front of a plate of food from Chipotle.

Image source: Chipotle Mexican Grill.

While shares of Chipotle initially fell sharply during this coronavirus downturn, they've recovered most of their ground since mid-March. Investors quickly realized that Chipotle is well-positioned to manage near-term challenges -- and this was confirmed when the company reported first-quarter results this week.

Here are five key takeaways from Chipotle's first-quarter update, highlighting how the company is faring during this pandemic -- and why the growth stock jumped following the quarterly update.

1. Comparable-restaurant sales increased

Chipotle didn't escape the damage COVID-19 wreaked on retail in March. Same-store sales during the month fell 16% year over year and hit a low of a 35% year-over-year decline during the week ending March 29. But what was impressive was Chipotle's ability to still grow comparable-restaurant sales for the full quarter, despite this headwind in March. Q1 same-store sales increased 3.3% year over year.

2. Digital sales soared

Unsurprisingly, digital sales soared during the quarter. They increased 80.8% year over year and accounted for 26.3% of total sales during the period, up from 19.2% of sales in the prior quarter.

While it's not surprising to see digital sales grow as a percentage of total sales, given that many Chipotle stores closed their doors to dine-in customers in March, it still highlights the company's ability to take advantage of sales in this evolved market. For instance, the company quickly rolled out free delivery and shifted its marketing campaign from live sports to streaming TV as part of an effort to quickly adapt to new circumstances.

3. Today, digital dominates total sales

Chipotle's strength in digital was particularly clear in March, when digital sales soared 102.6% year over year and accounted for 37.6% of total sales.

Chipotle online order bag

Image source: Chipotle Mexican Grill.

As of Chipotle's first-quarter update on April 21, digital was currently accounting for 70% of sales.

4. Sales trends are rebounding in April

Since Chipotle's first-quarter update occurred a few weeks into Q2, management provided some timely visibility into the current quarter, noting that comparable-restaurant sales trends have improved in April, compared to late March. Specifically, management said comparable-restaurant sales experienced a 35% year-over-year decline in the week ending March 29 but have improved to a decline in the high teens during Easter week, when adjusted for the impact of the holiday.

5. Chipotle has nearly $1 billion in cash

Finally, investors should note that Chipotle has plenty of liquidity to weather this crisis. Specifically, the company ended the quarter with $909.2 million in cash, restricted cash, and short-term investments.

In addition, the company expects liquidity to benefit from $100 million of deferred social security tax payments and accelerated tax depreciation due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

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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