Chipotle Mexican Grill, Inc. (CMG) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Chipotle First Quarter 2021 Earning Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ashish Kohli, Head of Investor Relations. Please, go ahead. Ashish Kohli: Brian Niccol: Thanks, Ashish, and good afternoon, everyone. Chipotle is off to a promising start in 2021 which gives me optimism for the rest of the year. There's still uncertainty related to COVID, but as more people become vaccinated, including many Chipotle employees, I'm hopeful we're getting closer to brighter days ahead. In fact, all but about 20 of our restaurants are now open with 92% of them offering in-restaurant dining with capacity limitations. For the quarter, we reported sales of $1.7 billion, representing 23.4% year-over-year growth, which was fueled by 17.2% comparable restaurant sales growth, including about a 1.5% headwind from winter weather in February; restaurant level margins of 22.3%, which is 470 basis points higher than last year; earnings per share adjusted for unusual items of $5.36, representing an increase of 74% year-over-year; digital sales growth of 133.9% year-over-year, representing 50.1% of sales and opened 40 new restaurants, including 26 with the Chipotlane. Not surprisingly, comparable restaurant sales were the highest during the month of March as we lacked easier comparisons. And I'm pleased to report that April is off to a good start. These results highlight that our key strategies continue to resonate with guests and position us to win today, while we create the future. Jack Hartung: Thanks, Brian, and good afternoon, everyone. We're proud of our performance during the first quarter with sales growing 23.4% year-over-year to $1.7 billion as comp sales grew 17.2%; restaurant level margin of 22.3% was 470 basis points higher than last year and earnings per share adjusted for unusual items was $5.36, representing a 74% year-over-year increase. This included benefit from lower taxes related to option exercises and share vesting, which is more than offset by higher G&A related to performance based catch up adjustment and taxes on equity exercising investments. And I'll discuss these factors in greater detail shortly. The first quarter had unusual expenses related to our 2018 performance year modification to account for the unplanned effects of COVID, restaurant asset impairments and closure costs as well as transformation costs, which negatively impacted earnings per share by $0.91, leading to a GAAP earnings per share of $4.45. While, the impact from COVID appears to be lessening, we're not quite out of the woods yet as seen by the recent spikes in a few regions as well as a pause in administering certain vaccines and therefore it's still difficult to provide comp guidance for full year 2021. We are encouraged by the strong start and we're optimistic about our full year performance in 2021. Operator: We will now begin the question-and-answer session. And the first question comes from David Tarantino of Baird. Please go ahead. David Tarantino: Hi, good afternoon, everyone. My question is really about the reopening of the dining rooms to more full extent and the resumption of consumer activity we're starting to see as the vaccines roll out. And I guess, Brian or Jack, can you elaborate on what you're seeing as that activity returns in terms of sales and mix? And then, secondly, based on what you're seeing as the dining room traffic might be coming back, how are you thinking about the overall unit volume opportunity in the U.S. assuming that some of these digital transactions might stick? Thanks. Brian Niccol: Yes. Hey, thanks, David. Look, what we're definitely seeing is, people want to be back in our dining rooms. I've had the luxury of traveling recently. And Scott and I've been to numerous restaurants and it's great to see the lines, again, in our dining rooms. And we're seeing a nice rebound, obviously, in those dining room sales because there weren't any a year ago. And at the same time, what we're seeing is our digital business is really continuing to thrive. In the quarter, I don't know if you guys picked up on this, but when we had record sales for our digital business, despite the fact that our dining rooms are opening. So I think it just demonstrates the power of both access modes, meaning the in-restaurant dining access mode and the digital access mode. And then, not surprising you're seeing the occasions come back based on whether you're coming into the dining room, or whether you're ordering off-premise. And that's more tied to help open the region is, is how I would kind of describe it. So we're feeling great about where we are. Consumer sentiment is definitely one where they want to get back out to socialize and get back into the dining rooms and have that in-dining experience. And then, at the same token for those occasions that they've built, the behaviors around digitally, those are remaining in the business and I think that's why you're seeing our results in Q1. And frankly, why I'm really proud of our team is that we're managing these two businesses out of one kitchen with really added excellence. David Tarantino: Great. And then, my other question is on the quesadilla. And I guess, from a consumer behavior uptake, it sounds like you're getting a high incidence for that product. Do you have information that would tell you whether that's kind of new customers or incremental customers or existing customers trying the product? I guess, what do you think the incrementality of that might look like? Brian Niccol: Yes. So you're exactly right, David, the incidence is high. We're in that 10% range. I think is what we discovered. And the thing is really exciting is, it's comprised of a lot of new users. So we're seeing two things happen. A lot of new users come into the business through the quesadilla proposition, and then our existing customers, we're also seeing them utilize that quesadilla platform as part of a new eating occasion. So, it was actually our highest penetration of new customers in the month of March, which I think is just a testament to, one, people coming back to the dining rooms; and two, I think, a really meaningful innovation around quesadilla. David Tarantino: Great. Thanks so much. Brian Niccol: Yep. Operator: The next question comes from Jon Tower of Wells Fargo. Please go ahead. Jon Tower: Great. Thanks. Hopefully, you can hear me, okay? Just curious on the delivery side of the equation. It sounds like Jack, you'd mentioned the company has taken another 4% or so pricing in the delivery channel during the quarter. Where does that set the delivery occasion now relative to an in-store transaction? And do you feel like there's even more potential to take pricing in that channel, if necessary down the line? And when I ask the percentage piece on a margin basis to gross as well? Brian Niccol: Jon, you cut out at the very end. Jon Tower: Okay. I was just asking gross profit dollar versus the margin percentage when it comes to the delivery transaction? How those have changed with the incremental pricing versus the restaurant transaction? Brian Niccol: Yes. Jack, you want me to take that, or you want me to start or… Jack Hartung: Yes. I'll go ahead and start Brian. Brian Niccol: Okay. Jack Hartung: Listen, the last price increase that we took, it doesn't get us all the way to where a delivery transaction -- delivers the same margin as an in-store transaction. And certainly not as much as our highest transaction, the order ahead. very, very close. From a dollar standpoint, they're pretty close. But as you know, when you are charging higher prices, you're grossing up the sales. And so it makes it a little harder to fully capture that margin. But I would say, we're within striking distance where, maybe a few percentage points away if we wanted to completely equalize, the margin on an in-store transaction for a delivery. So we've made a lot of progress over the last year. And when we've taken these increases along the way, we've seen either acceptable resistance. And we've also seen what looks like people are shifting channels, because it does look like our order ahead moves up, when we do see customers maybe resist the higher pricing and delivery channels a bit. Jon Tower: Great. And if I may, on the loyalty side of the equation, I believe, Brian, you'd mentioned earlier, there is some efforts internally to improve engagement per customer feedback that you've received. So what have you heard from customers in the loyalty program done today? Brian Niccol: Yes. So you kind of cut out near the end, but I think I got the gist of the question, which is, how are we seeing more customers become more engaged within our rewards program? And the simple answer on that is, I think, we've gotten a lot smarter with the analytics. So that, I mentioned this in my prepared remarks, we're really trying to figure out how we move just from a commerce experience to an engagement experience. And so what you're seeing is, the power of that playing out by people shopping more often, with Chipotle experimenting with other things on the menu. And obviously, there's going to be further enhancements to our rewards program going forward because we want to respond to our customers to keep them engaged in this rewards program. Jon Tower: Great. Thank you very much. I appreciate it. Operator: The next question comes from Sara Senatore of Bernstein. Please go ahead. Sara Senatore: Oh, thank you. I wanted to ask a little bit about the loyalty members and also your comment about the 40% I think you set up delivery orders coming through proprietary apps. So first, just the loyalty members, I guess, do you have a sense of what percentage of your total customers that might represent if you have a certain 80 million, 100 million unique customers, something like that? I guess I'm trying to sort of reconcile the loyalty membership with your -- the delivery orders or the digital orders that are coming through your native apps, because it seems like the share of orders that are coming through your own ordering platform has gone up. And I'm trying to figure out, are you shifting people away from a third-party by virtue of incentivizing them through loyalty or that kind of thing? Or is it just that the people who are ordering directly are very high spending customers and they're the sort of minority that will ultimately download your apps versus preferring the convenience of a have an aggregator platform? I know, there's a lot in there, but I'm trying to understand sort of the power of -- the Chipotle brand versus like, kind of like, call it, the convenience of the aggregators and who owns the customer there? Brian Niccol: Yes. Look, I think were you just ended your question is the answer, which is, we have a very powerful brand. And as a result, when people join our rewards program, download the app and start ordering through our app, and they realize that they have the access of order ahead and pick up whether it's at a Chipotle lane, order ahead and pick up meaning, I can grab it off the shelf and go, or I can get delivery through our app. In all those occasions, you are able to accrue points and get recognized for being an engaged customer. And we're providing lots of access, lots of convenience, with a very powerful brand position behind it. And that's why I think you're seeing our order ahead business continue to grow, our white label or delivery business in our app continuing to grow as a percentage of the delivery occasion. And I think it's just a function of the brand continues to resonate, our first strategy is all about building the brand, trust and love. And I think while we do that and provide a great experience, both digitally and for whatever occasion you want associate with that digital experience. And then, you give them rewards, it's a really powerful system that keeps people engaged. Sara Senatore: Great. That makes a lot of sense. And then, just do you have any sense of like, kind of what share of Chipotle customers are on your loyalty program versus ultimately what you might get to? Brian Niccol: Well, look, we've got 21 million customers, in the rewards program, 60% of those are active, ongoing. And then, we've got programs with those that we see lapsing. But we don't see a whole lot of crossover, still between the dining room experience and the digital experience, there's only 10%, 15% that are doing both occasions. So there is still a lot of upside in getting our dining rooms reopen for that customer experience, customer occasion. And that's why I think the earlier question I got, I'm so optimistic about our dining rooms reopening because it's not cannibalizing from our digital business. These are really two distinct occasions that people want to have access to great food with integrity. So there's 100 million Chipotle customers coming through these doors. And the good news is, we know when we get that dining room open there's a lot of people that are going to come back that we haven't seen in a while. Operator: The next question comes from Lauren Silberman of Credit Suisse. Lauren Silberman: So on quesadilla, as you move through the Stage Gate process, you talked a lot about your focus on operations, the quesadilla is now available across the system. Are you seeing any impact on throughput or operations relative to what you expected? Brian Niccol: Yes. Look, I'm really happy to say the Stage Gate process worked. Because two things. One, we've got the right kitchen equipment to create a great product at great speed. And then two, we got the right operational process in place. So, if in the event somebody does order still on the frontline, obviously our guys will figure out how to accommodate it, but it is a much faster experience with a much better product. So we've improved our employees experience when that happens. And then, for our customers, their learning, the quesadilla made to be an off-premise solution with Chipotle's food. And I think it's a testament to our teams, our operators that validated it, our marketers that have explained to customers how to use it, and then, the marriage of our technology to actually get the transaction in place. So it's a great example of using the Stage Gate process in the most effective way possible. Lauren Silberman: And I think you've thought, you had the expectations for quesadilla incidents to normalize in Q2. So just to clarify, do you expect the mix to settle below the 10%? And then, how does the attachment rate to the inside compared to what you see with burritos and bowls? Brian Niccol: Yes. So look, we're just saying we're only what a couple weeks into this. And the good news is, we haven't seen -- go backwards yet. So and the feedback from our customers, are they loving it. The attachment rate looks really good. It's frankly, a little bit better than our burritos and bowls. So I think that's the power of showing our food going really well with . And again, it's Chipotle's food is really good and guess what, it's really good when it's in a quesadilla. Operator: The next question comes from Brian Bittner of Oppenheimer. Brian, your line is open. Next question comes from Peter Saleh of BTIG. Peter Saleh: I want to come back to the conversation around delivery menu price increases. You guys mentioned a 4% increase most recently. I think the test that you guys were running was substantially higher than that on the delivery price increase. So can you talk a little bit about the -- did you see pushback on the test? And why did you decide on a 4%? Why was that the right amount of a price increase to take? Brian Niccol: Yes. So just to clarify, or go ahead, Jack? Jack Hartung: Brian, you're probably going to say the same thing I would. Peter, just to clarify, we are running 13 in most of our restaurants across the country. We had a few that were at different levels, so we could see the differences. We took the entire country up another 4%. So we're now charging a plus 17. And the reason we did that was we were comfortable that the resistance that we saw was acceptable resistance that we did see people move into other convenience and other value driven channels. So I think that's a testament to. We had the 13% price increase running for several months. And we were very comfortable that we could go another 4%. So the 4% we just took earlier this month was an addition. Peter Saleh: Great understood. All right. And then, just on the Chipotle lane conversions, I know you have around 400 freestanding stores and a 1500 to 1600 end-caps. Have you guys thought a little bit more about how many conversions you can actually do? I know I think the quarter or two ago, you said potential for several 100? Has that number increased at all? Jack Hartung: It hasn't changed per se. Our desire to have more Chipotlanes and to push the percentage of new restaurants that open with each Chipotle lane. We want to continue to push the envelope there. And then with conversions, we want to opportunistically look at relocations and rebuilds that -- remodels where we can add a Chipotle lane. We still think that we can have hundreds of conversions. It's hard to pin that down though, because, in essence, what you do is, we have to as we approach the end of a lease term. Like let's say you've got a 10-year primary term with options, when you get to year seven or eight that's the time you have the conversation with landlords. If you've tried to have the conversation with landlords to try to get permission to modify the space in year two or three, when you've got seven years left, landlord doesn't really want to have that conversation. So we have those conversations and we have many of them throughout the year. If you look back to 10 years ago, we will have 100 or more, maybe in the 100 to 150 range, where we're having conversations with landlords. Those conversations are going well. But it's too early to tell exactly how many hundreds of these conversions we can get, we're definitely pushing the envelope. Operator: The next question comes from David Palmer of Evercore ISI. David Palmer: So I just wanted to get a few clues from you about how the sales layers might shake out after the full reopen, after we get past all the vaccinations and things get up and running at least reasonably so I'm sure work commute will be -- there'll be some areas will be lagging there. But what do you see from some of your early and most reopened markets in terms of that on-premise business sales layer. It looks like overall on-premise might be only 70% of pre-COVID levels right now as a system. But where is that getting to in some of your most reopened markets? And when it does get to that level? How much is your off-premise business, the digital side, really hanging in there? And I have a quick follow up. Brian Niccol: Yes. So David, the way to think about it is, like in our regions that are the most open, obviously, you're not that far off on your average of the return in our dining business, the places where we're more open, we're above the average. And the thing that I love to see is, regardless, our digital business is maintaining that 80% to 85% run rate. The thing that's also exciting, though, is, as I mentioned, in the quarter, we still had record levels of digital business. And that's because we're going to continue to use our system called rewards, quesadillas to drive people further and further commitment on our digital platform for those occasions where it make sense. So, in the places where we're more open, we got more of our dining room business back, and our digital business is hanging in there. I'd say it's actually our digital businesses, operating from a position of strength. And then, the places where it's slower, the dining room has come back, thank heavens, we've got such a strong digital business. David Palmer: And I guess this might be one for Jack, in terms of how you think about sales and margins over time, in the past, you've had a rule of thumb of your AUVs tracking with margins, the way the world is working feels like sales will be higher on average for the average company out there. But margins may be more challenged for the average company out there. You might have some better defense mechanisms than others in terms your digital business and whatnot. But how are you thinking about that relationship? Is that changing, even as you see some of the recent measures you've been taking? And I'll pass it on. Jack Hartung: Yes. David, listen, we still feel very confident that our margin algorithm is alive and well. We made some important steps over the last several months, so that we're within striking distance of that algorithm. And we see from here on out as our volumes grow, our AUV was million and as we grow to 2.4. 2.5 etc, etc, we think that our margin will move to 24 and 25. Now, that's not going to happen every single quarter, it's not going to be perfect. But in terms of seeing our margins move up with our volumes, we still expect that to happen. Now there is a slight degradation as you move from 2.5 million to 3 million, for example, you might not get to all the way to 30% in terms of the margin for a $3 million restaurant, but you certainly should get in the 28% to 29% range. So we still fully expect that we'll be able to expand margins. And one of the things that's enabling that is, with the growth -- the significant growth in the delivery business that has been still is our lowest margin transaction. But we've close the gaps considerably and our customers are still choosing that channel or they're choosing another channel. So giving the customers choice and let them pay for the more extreme convenience channel of delivery, let them pay the going rate seems to be a workable strategy for us. Operator: The next question comes from Andrew Charles of Cowen. Andrew Charles: Brian, based on the experience with quesadilla, how are you around future digital only menu innovation that can't be done on the front make line, such as the potential for nachos and enchiladas. And perhaps from an ops perspective, are you confined to only one to two possible digital innovations in the new ovens? Or could there be several more items launched before you become capacity constrained on this digital make lines? Brian Niccol: Yes. Look, the good news is, we're far from capacity constraints on those digital make lines and we're continuing to make enhancements to our digital make line, so that our employees become even more accurate, more efficient. The equipment that we've chosen gives us a lot of flexibility, whether it's additional entrées or desserts, or whatever it may be. The good news is we got a lot of great ideas in our culinary team, obviously, we'll bet them through the Stage Gate process. But, look, the goal is to be balanced, at the end of the day, we want to have a great experience in the restaurant and a great experience, if you choose to go digital. And I don't think you're going to see us ever get out of equilibrium, where we're providing a great experience for whatever channel, it could be. I don't want to come across this DML all of a sudden, you're doing something every month. That's not who we are. Who we are, are great ingredients done in very simple ways, so that you can customize. And the good news is, we've got lots of capacity on that line. And now we've got more flexibility because of the additional equipment that we have. So not surprising, I think there's a lot of growth still to be had on their digital business. And there's still tremendous growth to be had in our dining business. Andrew Charles: That's helpful. Then Jack, I have a follow up question on development. This might be a little technical, but looking at the proxy, it looks like there were 324 site assessment requests over the next 12 to 18 months. That's about 50% higher versus the 227 that was in the proxy from a year ago. And so, when I look at the guidance for 200 store openings this year, it's not quite 50%, above the 161 you did last year. So, in terms of the guidance for 200 openings, besides conservatism, just on the availability of construction crews, is there anything else in there that might be presenting pressure on 2021development? Jack Hartung: No, I would say it's more of a timeline challenge. We've seen that the timeline have elongated over the last, year or two or so. And so, this year, for example, we target 200, first quarter was exactly on pace to do 200. I think you can expect us to see, to open up similar numbers in Q2 and Q3. Now, what might happen, Andrew, we might overperform a bit in the fourth quarter. It's too early to say that right now, we certainly have a very healthy pipeline. That pipeline is chock full of a bolt line. So, we think the numbers go up from here, not down. But right now the responsible number of 200, I think still applies. But let's see how things shape up in quarter two and three, what the fourth quarter looks like. Operator: The next question comes from Nicole Miller of Piper Sandler. Nicole Miller: Just one question for me. I'm curious about, traditionally thinking about restaurants and unit level economics. And what I'm wondering is, with your 21 million loyalty relationships in the CRM platform you're talking about, can you talk now about customer lifetime value? Like, what's the economics of a customer? Now that you found some of them outside of the four walls of the store? Brian Niccol: Yes, it's a great question, Nicole. One of the reasons why we're so I guess optimistic about our rewards program is, these reward members versus non-reward members, they're coming more often and they're also spending more. So that's obviously a great outcome of putting somebody into a rewards program. And then, I think the team has really become so much more sophisticated in our ability to understand what they want from Chipotle. And as a result, you're going to see us making some further enhancements to the rewards program and the experiences that people can have. So they will be even further engaged. And the whole reason why we're doing that is because we think we can get even more frequency out of people and potentially continue to influence that check further. So it's a very valuable asset. And I think it's going to continue to become more valuable. Operator: The next question comes from Jared Garber of Goldman Sachs. Jared Garber: I wanted to touch base on the labor environment and what you guys are seeing from that respect, obviously, we've heard a lot in the news lately about the availability of labor and the challenges of staffing up. So I wonder if you could talk there, a little bit about what you're seeing and if you're seeing those similar challenges play out. And then, as it relates to that, how you guys think about potential pricing power and/or pricing in different markets? Thanks. Brian Niccol: Sure. So, obviously, one of the things that's great is, we're seeing, the economy come back in a big way, with customers out of the balloting, getting back to the business of -- it's a normalcy. With that, obviously, we are quick to want to step up our restaurants accordingly, to be in sync with where our business is growing. The positive is, it came back really fast in March. The negative in that is, you got to play a little bit of catch up with the staffing. But I think our employee value proposition is world-class. And as people realize these opportunities are available, usually we have no problem with the applicant flow. And then, we turn our attention to training and developing these individuals, because it's a great opportunity for not just the job now, but a future career. So, it's great to see the business come roaring back, it's also exciting to see our need to staff more people because that is the growth that we like to have. We like to have growth that results in more jobs and more people having upward opportunities. We had, I think 13,000 plus promotions recently. So, I mean, that's just a testament to the growth that we have, the strength of our proposition for those that stay with us commit themselves to being developed and trained. And then, obviously, we're going to staff accordingly, as the business comes forward and back. So I'm very optimistic about the people we can attract, the culture that we create for them and then the opportunities that are available for them. And what was the second part of your question? Jared Garber: Just as it relates to kind of increasing wage pressures across the industry, how you guys think about mitigating that through price increases? Obviously, you've taken on delivery, but more broadly across even like the dine-in side of the business and how you think about that geographically as well? Brian Niccol: Yes. I think we've talked about this in the past, the good news is our value proposition is, I would say top, top tier. And so that gives us a lot of flexibility on how we price and when we price. We've taken a very conservative approach on it. We've been more in that 1% to 2% range on an annual basis. I mean Jack has talked about is that usually offsets any labor inflation that we deal with. So, I think we're in a really strong situation, both from a brand value proposition and then the ability to attract and retain people with our employee value proposition. Operator: Next question comes from Andy Barish of Jefferies. Andy Barish: Just taking that a little bit further. I know, some of the traditional metrics of, I've kind of gotten a little bit skewed by everything going on right now. But can you quantify sort of what type of wage inflation you're seeing? And then, also on the commodity front? Certainly the commodity proteins have been significantly higher, just wondering if you're starting to see that, in the non-commodity markets that you're buying from? Jack Hartung: Yes. I'll take this. First of all, Andy, in the last year, what we've seen with labor inflation has it's -- and more modest than it had been in the last five years. And last five years, we've seen inflation and kind of the mid-single digit range and with some of the dislocation going on with COVID. Actually, the labor inflation dropped to the low single digits. But we expect I think most people expect that's going to tick back up. And let me just give you an example because the other thing that you might be thinking about is, what if we have a national minimum wage, that's -- that over time approaches $15. Now, the way to think about this is our minimum wage, or our average wage right now, is $12 for our crew, it's $13 for all of our hourly employees. We're not that far off of like, for example, a $15 number. But let's say for example, that there's going to be an across the board, 10% increase in our wages, that would have an impact on our margins, I will call it 150 to 200 basis points. And that would to offset that with menu pricing that will take a 2% to 3% price increase. So all of that is very, very manageable. And we feel like if there is going to be significant increased inflation there because of market driven or because of federal minimum wage. We think everybody in the restaurant industry is going to have to pass those costs along to the customer. And we think we're in a much, much better position to do that, than other companies out there. In terms of commodities, the one that we're seeing for sure and this is more of a seasonal shift that we see pretty much every year is avocados. We are going to see an increase in avocado prices as we shift into the next season. We don't see anything else moving up dramatically right now, Andy. I mean, I think everyone's kind of waiting to see what happens in terms of demand and if there are any disruptions with supply chain, we're not seeing any that we're worried about right now. But with everyone talking about with the stimulus and the reopening and the vaccine, there is going to be a surge in demand. And we think we're well prepared from supply chain standpoint. But that's the only kind of wildcard as the year unfolds is. Will there be maybe a cyclical or interim dislocation where maybe there is some commodity inflation, but nothing that we're seeing right now. Operator: The next question comes from Brian Vaccaro of Raymond James. Brian Vaccaro: I was hoping to better understand the sales cadence that you saw through the first quarter, perhaps you could comment on the two year stack by month and where that stood quarter-to-date in April. And then, I know you mentioned more normal quesadilla incidents. But could you walk us through kind of the other puts and takes that you considered as you set the second quarter sales guidance? Brian Niccol: Yes, sure. So, obviously, the first quarter, I think Jack covered it in his remarks, the geometric average was in -- the 20%, 21% range. I would obviously tell you, January was a really good start, February, kind of flattish and March was really strong. Obviously, you got a much easier rollover. And then, we talked about all the things we did around launching quesadilla and dining room, start to reopen, so on and so forth. As you move into April, if you think about this two year, I think that's probably the best way to think about our business right now, because of what you're seeing in kind of the, the year ago, performance on Easter, and so on and so forth. The good news is, we've seen days and weeks where you're in the 20s, and we've seen days in weeks, where you're in the high teens, so it's bouncing around a little bit. And I think a lot of things are driving that, right, you're still seeing things flash around COVID in different parts of the country. Unfortunately, we had the pause and the vaccines. So you've got some consumer sentiment, I think, bouncing around, which obviously plays a role. And then, obviously, we're going to be more in the leverage phase of our quesadilla launch versus our launch phase, which is what we're taking into account as we think it'll normalize as you go down into the rest of the quarter. So, those are some of the puts in calls, we're in a couple weeks into the second quarter. We love where we are and we'll see how the rest of the quarter unfolds, because I think we've got the right strategies. So, we're going to stay focused on what we know has been working for us. Brian Vaccaro: And could you also comment on California, specifically, obviously, a big important market for you? Could you just ballpark where volumes there are versus the rest of the country? And have you seen an acceleration more recently as COVID restrictions are lifted? Brian Niccol: Yes. Look, I mean, this is not just a California phenomenon. This is a phenomenon that's happening across the country, which is, as I think places see a reduction in COVID cases and an increase in vaccines and people get back to maybe their old habits, as well as some of the habits they've created in this new environment. You see the business respond accordingly. So more people being out and about results in really good things for a restaurant concept like us, because they only around about Chipotle is a great option. Obviously, we've demonstrated we're a great option when you need that off-premise occasion as well. So the dining rooms become more open, people are more confident to be out and about that bodes well for us in every state. So it's not just the California phenomenon. That's an American phenomenon. Brian Vaccaro: Yes. Makes perfect sense. I'm in Atlanta, and I see it every day. So makes pretty good sense. Thank you. I will pass it along. Operator: The next question comes from Chris O’Cull of Stifel. Chris O’Cull: Brian, I was curious what you believe the risk may be to sales growth from pulling the cauliflower rice, I think you said in mid-May? Brian Niccol: Look, I think this is a great initiative that we did. I've mentioned in the past, our goal is to keep people engaged with our menu. We'll have some things on for time period, and then take them off and bring them back. What we've seen, where we've tested this in the past is, it's not anything that results in us taking pause and moving forward with our strategy of taking it out in May. So, the good news is, we've got a lot of strength in the business. I'm sure it'll be something we'll bring back down the road. But, we feel really good about our strategy of having some items that come off the menu and other items like the quesadilla that'll be permanently on the menu. Chris O’Cull: And then, I was curious if you're seeing a similar level of beverage attachment rate with dine in usage today that you saw pre-pandemic? Brian Niccol: Well, look, I think Jack's talked about this, that's one of the things that's been a little bit of a drag is, as people stop coming into dining rooms, our beverage incidents went down. We fully anticipate as the dining rooms come back, we'll recapture that beverage incidents and things really start to normalize. I think we've got another shot at making people aware of the new tractor beverage offering, which the reason why we initially did that is, we were hoping to drive more beverage incidents. So that's our plan. As the dining rooms come back, our plan is to figure out how we can drive more beverage incidents accordingly. Operator: This concludes our question-and-answer session, I would like to turn the conference back over to Brian Niccol for any closing remarks. Brian Niccol: Okay. Well, thank you, everybody and thanks for all the questions. I just want to start off with first saying how immensely proud I am of all of the Chipotle employees. I think what we've seen in the last quarter, and frankly, the last year is the power of great people, great culture, being focused on the things that needed to be handled right now. And it's pretty powerful to see an organization of 100,000 people come together and do the right thing for each other and their community. So very proud of this organization, very proud of our employees. And look, I think we're off to a great start in '21 because our employees have demonstrated the resiliency of our business. I'm confident that we will continue to do the right things, so that as the dining rooms reopen, we will give people great experiences, we'll continue to invest in our digital business that's not done growing, as evidenced by what we shared here. And then, obviously, we talked about this too, we're very committed to seeing the AUV margin algorithm come to life. And that's really exciting to see that starting to emerge in a meaningful way. And then, lastly, it's really exciting to be building 40 plus restaurants in a quarter, we're going to build from here. And I think we're well on our way to getting back to the business of Chipotle growing in a meaningful way, both top-line, bottom-line and new units. And then, that results in great opportunities for all our people that have just demonstrated the power of the Chipotle culture and the Chipotle purpose. So thank you for joining. Thank you for listening and I look forward to touching base in a quarter Take care. Operator: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
Chipotle Mexican Grill, Inc. (CMG) Earnings Report Analysis
- Earnings Per Share (EPS) Beat: Chipotle reported an EPS of $0.25, surpassing the Zacks Consensus Estimate.
- Revenue Miss: Despite the EPS beat, Chipotle's revenue of $2.85 billion slightly missed the estimated figure.
- Market Valuation Metrics: Chipotle's financial metrics, including a P/E ratio of 54.35 and a price-to-sales ratio of 7.32, highlight its market valuation.
Chipotle Mexican Grill, Inc. (NYSE:CMG) is a prominent player in the fast-casual dining sector, known for its focus on fresh ingredients and customizable menu options. Competing with other fast-casual chains like Qdoba and Moe's Southwest Grill, Chipotle has carved out a significant market share. The company operates numerous locations across the United States and internationally.
On February 4, 2025, Chipotle reported earnings per share (EPS) of $0.25, surpassing the Zacks Consensus Estimate of $0.24. This marks an improvement from the previous year's EPS of $0.21. Despite this positive earnings performance, the company's revenue of approximately $2.85 billion slightly missed the estimated figure, leading to a decline in its share price.
The market's reaction to Chipotle's earnings report underscores the importance of meeting revenue projections. As highlighted by Barrons, the shortfall in revenue has affected investor confidence, despite the earnings beat. Analysts attribute the disappointing sales figures to factors like tougher year-over-year comparisons, adverse weather conditions, and holiday timing.
Chipotle's financial metrics provide insight into its market valuation. The company has a price-to-earnings (P/E) ratio of 54.35, indicating that investors are willing to pay over 54 times its earnings. The price-to-sales ratio is 7.32, and the enterprise value to sales ratio is 7.67, reflecting the company's valuation relative to its sales.
The enterprise value to operating cash flow ratio stands at 45.67, showing the company's valuation in relation to its cash flow from operations. Chipotle's earnings yield is 1.84%, representing the return on investment for shareholders. With a debt-to-equity ratio of 1.24 and a current ratio of 1.62, Chipotle maintains a moderate level of debt and a healthy liquidity position.
Truist Reaffirms Buy Rating on Chipotle Following Recent CEO Appointment
Truist Securities analysts reiterated a Buy rating and $72.00 price target on Chipotle Mexican Grill (NYSE:CMG), viewing the recent appointment of Scott Boatwright as permanent CEO as a positive move for the company. Recognizing Chipotle as a fundamentally operations-focused business, the analysts see Boatwright’s experience as aligning well with the company’s strengths.
Chipotle’s appeal to consumers has remained steady, with a core menu that has largely been consistent since the company’s founding. Recent sales growth has been driven by factors such as seasonal menu innovations, increased digital sales, and stronger marketing efforts.
However, Truist believes Chipotle’s operational improvements have been the primary catalyst for its sustained recovery since its food-safety challenges in 2015-2016. Boatwright, who previously served as Chief Operating Officer since joining Chipotle in 2017, brings extensive experience in operational leadership from his 18-year tenure at Arby’s, where he last held the position of Senior Vice President of Operations.
CEO Brian Niccol's Transition from Chipotle to Starbucks: A Strategic Shift
- Brian Niccol's move from Chipotle Mexican Grill (NYSE:CMG) to Starbucks marks a significant leadership transition, signaling new chapters for both companies.
- Under Niccol's leadership, Chipotle showcased strong financial health with a quarterly revenue of approximately $2.97 billion, a net income of about $455.67 million, and a gross profit of roughly $775.84 million.
- The strategic and operational successes at Chipotle under Niccol, including an operating income of $600.81 million and EBITDA of $684.37 million, provide insights into his potential impact on Starbucks.
Chipotle Mexican Grill (NYSE:CMG) has navigated through various challenges under the leadership of CEO Brian Niccol, demonstrating remarkable adaptability and resilience. Niccol, known for his transformative role at Chipotle, is making headlines with his recent move to Starbucks, trading Chipotle's signature barbacoa burritos for Starbucks' iconic Frappuccinos. This strategic shift not only highlights Niccol's versatility but also signals a new chapter for both Chipotle and Starbucks. The leadership change has sparked discussions about its potential impact, especially on Starbucks, which is expected to benefit from Niccol's proven track record at Chipotle.
Under Niccol's leadership, Chipotle reported a quarterly revenue of approximately $2.97 billion, showcasing the company's strong financial health and operational efficiency. The net income for the quarter stood at about $455.67 million, with a gross profit of roughly $775.84 million, indicating Chipotle's ability to maintain profitability and manage costs effectively. These financial metrics reflect the successful strategies implemented by Niccol, positioning Chipotle for sustained growth and stability.
The operating income reported at $600.81 million and EBITDA reaching $684.37 million further underline Chipotle's operational success. These figures demonstrate the company's robust operational management and efficient use of resources under Niccol's guidance. The earnings per share (EPS) for the quarter was $0.33, providing investors with a clear picture of Chipotle's earnings potential and financial health.
The cost of revenue for Chipotle during this period was about $2.20 billion, with income before tax at approximately $607.91 million, and the income tax expense for the quarter was $152.24 million. These financial details highlight Chipotle's effective cost management and tax planning strategies, essential components of the company's overall financial strategy. Under Niccol's leadership, Chipotle has not only navigated through challenges but also positioned itself for future growth, demonstrating the CEO's strategic foresight and adaptability.
As Brian Niccol transitions to his new role at Starbucks, the financial performance and strategic moves made during his tenure at Chipotle provide valuable insights into his potential impact on Starbucks. With Niccol's leadership experience and proven track record at Chipotle, Starbucks is poised to benefit from his strategic vision and operational expertise. This leadership change marks a significant transition for both companies, with the industry eagerly watching how Niccol's strategies will unfold in his new role.
Chipotle Shares Plunge Over 13% as CEO Brian Niccol Departs for Starbucks
Chipotle Mexican Grill (NYSE:CMG) experienced a sharp decline of over 13% intra-day today following the unexpected news that Brian Niccol, the company's Chairman and CEO, will be stepping down to take over as the new CEO of Starbucks.
Niccol, who joined Chipotle in 2018, has been widely recognized for spearheading a transformative turnaround at the fast-casual dining chain. His leadership saw significant improvements in the company’s operations, including a comprehensive technological revamp and strategic expansion initiatives. His departure has raised concerns among investors about the potential disruption to Chipotle's ongoing progress, fueling uncertainty about the company's future direction.
Chipotle's board has moved quickly to fill the leadership gap, appointing Scott Boatwright, the current Chief Operating Officer, as interim CEO. Boatwright, who has been with Chipotle for seven years, has played a key role in boosting operational efficiency and enhancing customer experience across the chain's more than 3,500 locations.
Chipotle Gains 2% on Strong Q2 Earnings and Margins
Chipotle Mexican Grill (NYSE:CMG) saw its shares surge by more than 2% in pre-market today following a strong second-quarter performance that exceeded Wall Street expectations, highlighted by an impressive earnings beat and a notable margin increase.
The fast-casual restaurant chain reported an adjusted EPS of $0.34, above the Street forecast of $0.32. Revenue also outperformed, reaching $3 billion compared to the projected $2.94 billion.
Year-over-year, revenue rose by 18.2%, driven by an 11.1% increase in comparable restaurant sales and a 32.0% jump in adjusted diluted earnings per share.
The growth in comparable sales was primarily due to an 8.7% increase in transactions and a 2.4% rise in the average check size. Digital sales remained a key contributor, making up 35.3% of the total food and beverage revenue.
Operating margins improved to 19.7%, up from 17.2% the previous year, while restaurant-level operating margins climbed to 28.9%, reflecting a 140-basis point improvement. This margin expansion highlights the positive impact of sales leverage despite facing challenges from wage and ingredient inflation.
Looking ahead to the full year 2024, management anticipates comparable restaurant sales growth in the mid to high-single digits and plans to open between 285 to 315 new restaurants, with over 80% featuring a Chipotlane.
Chipotle Mexican Grill, Inc. Stock Split: A Strategic Move to Broaden Investor Base
- The Chipotle Mexican Grill, Inc. 1 for 50 stock split aims to make shares more accessible and affordable, potentially increasing liquidity and broadening the investor base.
- Before the split, Chipotle's stock was trading at a high price, making it challenging for small investors to buy shares. The split is expected to lower the entry barrier.
- The stock split reflects Chipotle's strong performance and investor confidence, with a significant increase in stock price and robust growth over the past year.
On June 26, 2024, Chipotle Mexican Grill, Inc. (NYSE:CMG) underwent a significant transformation in its stock structure through a 1 for 50 stock split. This adjustment altered the number of shares available to investors but maintained the overall value of their investments. Chipotle, known for its fast-casual Mexican cuisine, has been a standout performer in the restaurant industry, competing against giants like McDonald's and Taco Bell. This move is part of the company's strategy to make its shares more accessible to a wider range of investors.
The stock split reduced the price per share, making it more affordable for individual investors to buy into the company. Before the split, Chipotle's stock was trading at a high price, which could be out of reach for many small investors. By executing a 50-for-1 stock split, the company aimed to lower the entry barrier, allowing more people to invest in its shares. This strategy is expected to increase liquidity and potentially broaden the company's investor base.
The decision to undergo such a large stock split reflects Chipotle's strong performance and investor confidence. Prior to the split, the company's stock was trading at $3,283.04, showcasing a significant increase of 2.80% with a change of $89.30 in its stock price. The stock's performance over the past year, with a low of $1,768.64 and a high of $3,463.07, indicates robust growth and a solid market position. With a market capitalization of approximately $90.18 billion and a trading volume of 471,665 shares on the NYSE, Chipotle stands as a heavyweight in the industry.
The stock split is anticipated to enhance Chipotle's attractiveness to investors by offering shares at a more affordable price point. This move could lead to increased trading volume and potentially more dynamic price movements. By making the stock more accessible, Chipotle aims to attract a broader audience of investors, including those who might have been previously deterred by the high share price.
Overall, Chipotle's 50-for-1 stock split represents a strategic effort to democratize access to its shares and foster a more inclusive investor community. This initiative, coupled with the company's strong financial performance and market presence, positions Chipotle favorably for continued growth and investor interest.
Chipotle Mexican Grill's Strategic Stock Split and Its Implications
- Chipotle Mexican Grill, Inc. announces a stock split to make shares more accessible to a broader investor base.
- The company's stock price reaches a new year-high, reflecting strong financial performance and market confidence.
- Chipotle's strategic initiatives aim to enhance liquidity, market visibility, and adapt to changing consumer preferences in the fast-casual dining sector.
Chipotle Mexican Grill, Inc. (NYSE:CMG) is a renowned fast-casual restaurant chain that specializes in tacos and Mission-style burritos. Founded in 1993, Chipotle has grown to become a major player in the restaurant industry, competing with other fast-casual dining establishments by emphasizing fresh, high-quality ingredients and customizable meals. The company's decision to undergo a stock split on June 26, 2024, where for every 1 share held, shareholders will receive 50 shares, is a strategic move aimed at making its stock more accessible to a broader investor base. This action reflects Chipotle's strong performance and its desire to continue expanding its shareholder community.
The stock split announcement comes at a time when Chipotle's stock price has seen significant growth, reaching a new year-high of $3,427.61, an increase of 1.85% or approximately $62.15. Trading between a low of $3,370 and a high of $3,463.07 on the day, the company's market capitalization has soared to about $94.15 billion. This impressive financial performance, coupled with a trading volume of 689,688 shares on the NYSE, highlights Chipotle's robust market presence and investor confidence in its business model and growth prospects.
The interest in Chipotle's financial health and the impact of consumer spending trends on the restaurant industry was further underscored by Nick Setyan's appearance on CNBC Television's 'Fast Money'. Discussing Chipotle's performance following its stock split, Setyan's analysis, although not fully detailed, points to the broader implications of consumer spending habits and their influence on the restaurant sector. This conversation, aired on June 18, 2024, reflects the keen market attention on Chipotle's ability to maintain its upward trajectory in the stock market post-split.
Chipotle's strategic initiatives, including the stock split, are set against a backdrop of changing consumer preferences and a competitive landscape. By making its stock more accessible, Chipotle aims to attract a wider range of investors, potentially enhancing its liquidity and market visibility. This move, coupled with the company's strong financial performance and market analysts' interest, positions Chipotle favorably in the eyes of both current and prospective investors.
Overall, Chipotle Mexican Grill's decision to undergo a stock split is a testament to its financial strength and commitment to shareholder inclusivity. With a significant increase in stock price and a solid market capitalization, Chipotle continues to demonstrate its resilience and appeal in the fast-casual dining sector. As the company navigates the post-split landscape, the focus will remain on its ability to sustain growth, adapt to consumer trends, and maintain its competitive edge in the industry.
