Shares of restaurant chain Chipotle Mexican Grill (CMG -4.24%) are outperforming the S&P 500 year to date, though that's not necessarily a big victory. As of this writing, the S&P 500 is down by 18% in 2022. By comparison, Chipotle stock is only down 15%. Therefore, it's beating the market -- but it still lost money for its shareholders.

That said, Chipotle stock has been relatively resilient and outperformed many other restaurant industry stocks. In this article, we'll examine what is going well and whether those things can continue in 2023.

Why Chipotle stock has held up in 2022

Chipotle followed a fairly simple recipe for success in 2022: It opened new locations, it grew its same-store sales, and it boosted its profit margins.

After opening 215 new locations in 2021, Chipotle began this year with 2,950 restaurants. In February, management announced that it had hit the 3,000 locations milestone when it opened a new restaurant in Phoenix, complete with a drive-thru (or, as the company calls them -- a "Chipotlane").

But management doesn't believe Chipotle is anywhere near its growth ceiling. Indeed, it believes that North America can support 7,000 Chipotle locations, and it aims to eventually open that many. It's on pace to add at least 235 locations in 2022, and it plans up to 285 more next year as it marches toward that long-term goal.

Roughly 80% of Chipotle's new locations are built with Chipotlanes, which have proven to be a key component to its same-store sales growth. Drive-thrus increase its restaurant throughput, which can bump up sales per location assuming demand is there.

And demand is there for Chipotle. On a year-over-year basis, same-store sales jumped by 9%, 10%, and almost 8% in the first, second, and third quarters of 2022, respectively.

Chipotle owns all of its locations, which is a large fixed cost. But by increasing sales per location, it can increase its profitability. Moreover, the company increased menu prices in 2022 to offset inflation. And this all contributed to improvements in its profitability. Gross margin, operating margin, and net margin are all sitting near five-year highs for Chipotle.

CMG Gross Profit Margin (Quarterly) Chart

CMG Gross Profit Margin (Quarterly) data by YCharts.

Can Chipotle stock beat the market in 2023?

I absolutely believe that Chipotle will grow its revenue again in 2023 for two reasons. First, it's opening up to 285 locations next year. Assuming just average Chipotle sales, these new restaurants could add over $700 million to the top line.

Second, just looking at the past decade, Chipotle's same-store sales have increased in all but one year. Even if same-store sales slip in 2023, the consistency of its record leads me to believe they won't go down much. And in that scenario, new locations would likely add more than enough revenue to offset a decline in same-store sales.

However, I'm less confident that Chipotle will grow its profits faster than revenue in the coming year. There are two important things to note here. First, management noted that consumers with lower incomes are eating at Chipotle less frequently because of its recent price increases. Sales have held up, however, because Chipotle's core customer base tends to have higher incomes.

That suggests to me that Chipotle is already tapping the upper limits of what people are willing to pay for its food. Which leads me to my second point: Chipotle's profit margins are, as noted, at five-year highs, which suggests that further improvements to profitability will be more difficult to achieve. Specifically, food, beverage, and packaging costs were less than 30% of revenue in the third quarter of 2022. That's historically very low and makes me believe further menu-price increases are extremely unlikely.

Profits are the weightiest matter when it comes to driving long-term stock returns, in my view. And Chipotle's chances for outsize profit growth look low to me, which is why I don't think Chipotle stock will beat the market in 2023.

That said, a single year is a short time period. And as Warren Buffett has said (paraphrasing his own mentor, the great value investor Benjamin Graham), "In the short run, the market is a voting machine but in the long run, it is a weighing machine." In other words, Chipotle stock could, for a variety of reasons, be popular with investors in 2023, win the voting-machine game, and beat the market next year after all.

However, I invest for the long term, so I look at what I believe matters most to Buffett and Graham's weighing machine: profit growth. And right now, I'm seeing low chances for this restaurant chain to beat the market on that metric. That's why I'm staying on the sidelines with Chipotle stock for now.