Believe it or not, shares of Chipotle Mexican Grill (CMG 1.07%) are up an incredible 47% in 2023 alone. This compares to a 7.7% gain for the S&P 500 during this same period. Chipotle has been flexing its pricing power, driving increased traffic to its stores even as it raises its prices. Investors apparently love what Chipotle is doing. The restaurant's resilient sales growth during a challenging macroeconomic environment is a testament to the burrito maker's appeal to both existing and new customers.
Here's a closer look at some of the key drivers behind Chipotle's shockingly robust growth in 2023.
Accelerating growth
Perhaps the most likely reason Wall Street has been bullish on Chipotle stock is that revenue growth has accelerated significantly this year. First-quarter revenue rose 17.2% year over year, up from the 11.2% growth Chipotle reported in the fourth quarter of last year and 14.4% growth for the full year of 2022.
Chipotle's Q1 revenue growth was driven by a 10.9% year-over-year increase in comparable-restaurant sales and 41 new restaurant openings. Comparable-restaurant sales growth was notably helped by an impressive 22.9% year-over-year increase in in-restaurant sales.
Capturing how Chipotle is doing better than management anticipated, the company's same-store sales growth rate in Q1 came in above the guidance management provided at the time of its Q4 report. Chipotle had guided for Q1 comparable-restaurant sales to increase at a rate in the high-single digits, yet the key figure came in at nearly 11%.
Operating leverage
Another win for Chipotle has been its operating leverage. In other words, the scalability of Chipotle's business model means that the company's operating margin expands as sales increase. This leads to operating profit growing faster than sales. To this end, Chipotle's operating income soared 93.3% year over year in Q1.
Showing the company's scalability, Chipotle's Q1 restaurant-level operating margin was 15.5%, up from 9.4% in the year-ago quarter and 13.6% in 2022's Q4.
The burrito chain's operating margin on a restaurant level has also been improving significantly. Chipotle's Q1 restaurant-level operating margin rose 490 basis points year over year to 25.6%. This was also up from a restaurant-level operating margin of 24% in 2022's Q4 and 23.9% for the full year of 2022. Some key factors helping its restaurant-level operating margin were increased sales, labor efficiencies, and lower avocado prices, management said during the company's Q1 earnings call.
Looking ahead
Fortunately, Chipotle expects to continue trumping the current challenging macroeconomic environment. Management said it expects Q2 and full-year comparable restaurant sales to increase at a rate somewhere in the range of mid-single digits to high-single digits year over year.
Restaurant openings should drive sales growth as well. The 41 new restaurants Chipotle opened this year are just a small preview of what's to come. In total, management expects to open between 255 and 285 new restaurants in 2023. Though Chipotle said between 10 and 15 of these openings will simply be relocations in order for some restaurants to get a new location that includes a drive-thru.
Given Chipotle's exceptional start to 2023, it's not surprising that the stock has soared. Revenue is growing rapidly, and operating profit is soaring even faster thanks to an expanding operating margin.
