There are some important facts investors need to know to become familiar with a specific stock. And for each stock, the key data can be different. Identifying and focusing on these key drivers that influence sales and profit now and in the future can help an investor decide whether a business has what it takes to succeed and whether its stock is worthy of being added to a portfolio. The rest of the data about a company is often just noise.
If you want to gain a better understanding of Chipotle Mexican Grill (CMG -0.34%) and its worthiness as a stock, there are three critical metrics you need to consider. Understanding why this particular data is important to the success of this company will make you a better and more educated investor.
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1. New store openings
During the quarter that ended Sept. 30, Chipotle opened 41 new stores, bringing the total number of openings in the first nine months of 2021 to 137. The fast-casual chain now has nearly 2,900 total locations and generated sales of $7.2 billion over the trailing 12 months.
It's not difficult to comprehend why launching new locations is such a big part of Chipotle's strategy. In order to keep growing revenue, the business needs to have more outlets that consumers can go to for their favorite burritos, bowls, or tacos. It also needs new outlets that adapt to the changing desires of its customers. Chipotle's popular drive-through, known as a Chipotlane, is becoming more pervasive among its new openings. And these different store formats allow the business to penetrate more suburban settings.
For 2021, management forecasts at least 200 new store openings for the full year. And one day, management believes that there can be 6,000 Chipotles operating in North America, which would be more than double the current footprint.
2. Same-store sales
Listen to the management team of any brick-and-mortar retail business, and you'll quickly learn just how important it is to grow same-store sales (or comps). In addition to opening new stores, increasing revenue per location matters a lot. One day, hopefully far into the future, Chipotle will run out of suitable places to open restaurants, so boosting foot traffic and transaction counts is crucial today.
In the most recent quarter, comps jumped 15.1% after increasing 31.2% and 17.2% in Q2 and Q1 of 2021. Chipotle's popularity among consumers, coupled with new menu introductions like the quesadilla and smoked brisket, is why it's able to get more production from stores.
Average unit volume (AUV) could one day reach $3 million, according to management. Compared to AUVs today of approximately $2.5 million, this is a big leap. Not only will this support the company's overall revenue growth, but Chipotle will then benefit from something called operating leverage, discussed below.
3. Restaurant-level operating margin
For the quarter, Chipotle's restaurant-level operating margin, a metric that only includes direct costs like food, labor, and occupancy, was 23.5%. This number has expanded significantly from the 14.1% it was five years ago in Q3 2016. This is a clear sign that revenue growth is outpacing the increase in expenses as the business continues to gain scale. Achieving a 27% to 28% figure here is what management firmly expects once the $3 million AUV target is hit.
Chipotle's restaurant-level margin should keep marching higher over time thanks to the previously mentioned Chipotlanes, as this store format tends to propel new restaurant sales, margins, and returns. And digital sales, representing 42.8% of total revenue in the quarter, are generally higher margin because customers don't physically eat at the restaurant.
And as inflationary pressures negatively impact the economy, and particularly restaurants, Chipotle's proven pricing power, best-in-class employee wages and benefits, and deep relationships with suppliers help to mitigate this risk while at the same time supporting margin expansion.
Make informed stock-buying decisions
Investors are now equipped with the knowledge they need to better understand Chipotle's business model. Pay attention to these critical data points in subsequent quarters and you'll be able to make more informed buying and selling decisions for your portfolio.
