It's usually a worthwhile activity to listen to the quarterly earnings calls of the stocks in your portfolio. This can provide clues about how management and Wall Street analysts view a company's recent performance and future outlook.
For Chipotle Mexican Grill (CMG -0.80%), comments recently made by the CEO deserve some serious attention. Let's see what he said that should have shareholders excited about the direction of the company.
The road to 7,000
Brian Niccol, Chipotle's CEO, recently reiterated the company's long-term plans on the second-quarter 2022 earnings call. "I'm certain that over time, we have the ability to grow our average unit volumes and achieve at least 7,000 restaurants across the U.S. and Canada," he said.
Not only is this number more than double the 3,052 locations Chipotle currently operates in the U.S. and Canada, but it's up from a previous target of 6,000 announced after the third quarter of 2021; the leadership team has become even more optimistic about the company's potential. This is impressive given the current macroeconomic environment, with the possibility of a recession on investors' minds, and major corporations lowering financial guidance for the rest of the year and laying off employees.
There are reasons to believe that the target of 7,000 stores is a realistic goal. Chipotle's store count over the past 10 years has skyrocketed from 1,316 at the end of Q2 2012 to 3,052 today. That kind of expansion is hard to dismiss.
Plus, Chipotle's prospects seem to have been bolstered by the COVID-19 pandemic. The company's insanely popular rewards program was launched in March 2019, and today it counts over 29 million members. This was part of the company's increasing focus on its digital infrastructure. When dining in was no longer an option during the depths of the pandemic, hungry customers were able to order their favorite menu items through the mobile app or company website. This resulted in sales growing at a rapid clip while most of the industry was struggling just to survive.
One of the key lessons coming out of the pandemic was that if Chipotle is able to increase accessibility and convenience, then customers will come. Of the 235 to 250 new stores planned for 2022, 80% will be built with a drive-through option, aptly called a Chipotlane. Experimenting with new store formats like the Chipotlane, as well as digital-only outlets, will help the business penetrate different markets.
With in-person dining popular again, accounting for 61% of the company's sales in the latest quarter, it'll be interesting to see how the balance between digital and in-person revenue shifts. Nonetheless, Chipotle's strong momentum should help it continue its expansion across North America.
And generating greater sales per store will certainly support Niccol's other goal of raising average unit volume to $3 million, up from $2.7 million today. "I'm feeling really confident we're going to get past $3 million, and I'm sure we'll probably be talking about how we get to $4 million at some point," he said on the earnings call. The $3 million goal -- together with 7,000 stores -- would mean $21 billion in annual revenue for the business, compared to trailing 12-month sales of $8.1 billion today.
Is Chipotle stock a buy?
Despite the clearly favorable characteristics underlying Chipotle's business right now, coupled with the growth outlook that Niccol reiterated on the conference call, I actually don't think the stock is a buy right now. Assessing a company's quality is one side of the equation. The other half is looking at the valuation of the business.
With that being said, Chipotle shares are currently trading for a price-to-earnings ratio of more than 61, which is expensive even given the company's prospects. This steep valuation is higher than other popular restaurant stocks like McDonald's, Domino's Pizza, and Starbucks.
With shares of Chipotle carrying this multiple and rising over 450% over the past five years, optimism looks to be fully priced in right now. I think it's best for investors to practice patience and wait for a pullback before buying the stock.