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1 Must-See Number From Chipotle's Earnings

By Neil Patel – Jul 30, 2021 at 1:10PM

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The pandemic boost has faded for this key customer channel.

Earlier this month, Chipotle Mexican Grill (CMG 0.42%) announced second-quarter 2021 financial results that exceeded Wall Street's estimates on both the top and bottom lines. Revenue came in at $1.9 billion, while adjusted earnings per share was $7.46. The stock price is up about 15% since the report's release. 

According to the report, one very important aspect of the fast-casual restaurant chain's business, which was booming during the depths of the pandemic, is showing major signs of slowing down. Here's what shareholders need to know. 

two people sitting by the couch eating Chipotle

Image source: Chipotle.

Digital sales show deceleration 

In the three-month period that ended June 30, Chipotle's digital sales, which include orders received from the website, app, and third-party delivery services, only grew 10.5% from the prior year period. I have to point out that this is coming off a particularly impressive performance in the second quarter of 2020 when digital sales more than tripled and accounted for 61% of total revenue. However, the slowdown is noteworthy. 

It's unrealistic to expect monster growth like that to continue, and the pandemic did leave consumers with essentially zero dine-in options. So, as dining rooms slowly open back up to full capacity, digital sales are naturally going to normalize. That's not necessarily a bad thing for this restaurant stock. In fact, there are two positive takeaways for investors as we look ahead. 

First, the pandemic presented the company with a real-life stress test for its digital operations, and Chipotle thrived. There are now more than 23 million rewards members, quite an accomplishment given the program is 2.5 years old. These customers were forced to become familiar with Chipotle's digital infrastructure and have learned to love the convenience of the ordering experience, much of which will stick going forward. 

Of the 56 new restaurants opened in the quarter, 45 had a Chipotlane, the company's name for its drive-thru option. Management has credited this format with increased new store sales, margins, and returns. Again, customers who are familiar ordering this way will certainly keep some of the same behavior. 

And second, as hungry customers start choosing to eat at a Chipotle, CEO Brian Niccol isn't worried about dine-in business cannibalizing digital revenue. He cites the return of the lunch eating occasion as a primary reason the company has recaptured 70% of pre-pandemic dine-in sales. At the same time, Chipotle has kept roughly 80% of the digital gains it had during the pandemic. According to Niccol, only 15% of customers utilize both channels, a positive sign for Chipotle. 

A Chipotle burrito bowl sits in the foreground of a image that includes nacho chips and dipping sauce.

Image source: Chipotle.

Unlike many restaurant chains, the Tex-Mex fast-casual pioneer only got stronger during the past 17 months. Continuing to leverage its technological expertise will bolster Chipotle's position. 

Looking ahead 

Management expects same-store sales (or comps) to grow in the low- to mid-double-digit percentage range in the third quarter. This is definitely not the jaw-dropping 31.2% rate that we saw in Q2, but it's still a solid pace. Additionally, Chipotle plans to open at least 200 net new stores for the full year, which would bring its total footprint closer to the 3,000 mark. 

The stock price has performed very well, up 31% in 2021. Consensus analyst estimates call for EPS this year of $25.49, more than double last year's number. The implied forward price-to-earnings multiple of 71 makes the stock look expensive. Although the fundamentals are remarkably strong, it's probably best not to buy shares today.

Neil Patel 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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