Chipotle Mexican Grill, Inc. (CMG) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Chipotle Second Quarter 2021 Earnings Conference Call. I would now like to turn the conference over to Ashish Kohli, Head of Investor Relations. Please go ahead. Ashish Kohli: Hello, everyone, and welcome to our second quarter fiscal 2021 earnings call. By now, you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.chipotle.com. I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements. These statements are based on management's current business and market expectations, and our actual results could differ materially from those projected in the forward-looking statements. Please see the risk factors contained in our annual report on Form 10-K and in our Form 10-Qs for a discussion of risks that may cause our actual results to vary from these forward-looking statements. Brian Niccol: Thanks, Ashish, and good afternoon, everyone. Chipotle second quarter results highlight the strength of our brand and our people, as we demonstrated growing momentum in our business. Over the past 15 months, our teams have done an admirable job navigating and executing against macro complexities while giving us great optimism for where we go from here. While COVID challenges remain, including uncertainty regarding the impact of the Delta variant, I'm confident that our teams are up to the challenge and we're hopeful that we'll gradually see a more stable environment over time. Specific to Chipotle, we're pleased that all of our restaurants are now open and most are back to normal operations. For the quarter, we reported sales of $1.9 billion, representing 38.7% year-over-year growth, which was fueled by 31.2% comparable restaurant sales growth; restaurant level margin of 24.5%, was more than doubled the 12.2% we reported last year; earnings per share adjusted for unusual items of $7.46, representing a significant increase over the $0.40 reported last year; digital sales growth of 10.5% year-over-year, representing 48.5% of sales; and we opened 56 new restaurants, including 45 with the Chipotlane. And I'm delighted to report that Q3 is also off to a strong start. While our trailing 12 month AUV is $2.41 million, the underlying run rate during the quarter is now above the historical peak of $2.5 million AUV. When we started this transformation a little over three years ago, I was often asked whether I thought we could get back to our peak $2.5 million volumes. My answer was, yes, and when we achieve it, we will talk about growth beyond that. So it's a nice achievement for organization to have $2.5 million AUVs again. But more importantly, we have growth strategies that will take us to the next leg of our journey, $3 million AUVs, along with industry-leading returns on invested capital that improve as we continue to add Chipotlanes. Stronger restaurant level economics combined with significant unit growth should allow us to optimize earnings power for many years to come. In fact, we remain confident in our key growth strategies and believe that over the longer term, they will allow us to have 6,000 restaurants in North America with AUVs pushing well beyond $3 million. Yes, the opportunity ahead of us remain significant. Jack Hartung: Thanks, Brian. Good afternoon, everyone. We're pleased to report solid second quarter results, with sales growing 38.7% year-over-year to $1.9 billion, as comp sales grew 31.2%. Restaurant level margin of 24.5% was more than double the 12.2% margin from last year, and represents the highest margin since 2015. And earnings per share adjusted for unusual items was $7.46, a significant improvement over last year's adjusted EPS of $0.40. Operator: And our first question will come from Nicole Miller of Piper Sandler. Please go ahead. Nicole Miller: Great quarter. Just wanted to ask one question around development with just two parts, please. The first is, how are you getting to at least store or maybe above 200 units? When you started the year, that seemed like it could be a really more of a target. So I'm just wondering like what has changed in the marketplace that's allowing you to get there now. And maybe that's a function of also growing the pipeline for next year if there is anything you can say even qualitatively on that? And then just the second part is around best practices. Like, how are things going outside of the U.S.? How's Canada? I think maybe the first Chipotlane opened. How's Western Europe? I think you're going to suburbs and testing technology. What are some shared best practices? Thank you. Brian Niccol: Yes, sure. Thanks, Nichole. And we obviously were very delighted with our quarter results. To get to your specific question about new unit openings, obviously, we're halfway through the year, so that gives us more confidence in where we're going to end the year. And I think we talked about coming into the year, how we had a really strong pipeline of units that were planned to be open. The team has done a phenomenal job in securing the people capability, to be ready to open the restaurants. They've done a phenomenal job on the supply chain to ensure that we have everything we need to open restaurants, and we've continued to have really great openings. So, the combination of sites lined up, supply chain in place, people capability ready to go, gives us just that much more confidence on how we'll finish out the year to reinforce our guidance around 200 plus new openings. And we continue to build a really robust pipeline going forward that's primarily driven by Chipotlanes, which is also a huge enabler for the business going forward. Your second question about what we seeing in Canada and Europe. Canada continues to perform. And we're really excited about the opportunity to opening more restaurants up there. Obviously, Canada has been a little bit slower on the reopening process, but even despite that they continue to deliver great economics, and frankly, are performing in line with the U.S., and we're very optimistic about how we can continue to open and grow in Canada. In Europe, I think I mentioned this in some of our recent investor meetings. We just opened two new restaurants outside of London, and both of those are off to a really good starts. We're just a couple of weeks in. But we love the diversity of assets that we're opening. We love the fact that we have our digital assets all in place. And I'm optimistic about what we're going to learn. So that we can really give clarity on the opportunity in Europe down the road. But that's still in the early stages of our stage-gate process. And I think I mentioned this in the past, probably COVID has slowed us down in our learning there than anywhere else. But love what we're seeing in the U.S. on new units and it's exciting to see the economics we're getting out of Canada. Operator: The next question comes from Dennis Geiger of UBS. Please go ahead. Dennis Geiger: Brian, just wondering if you could talk a bit more about the digital and the dining businesses? I guess, specifically, the customer overlap there, where you think that overlap is now? I believe, historically, it's been sort of in the 10% to 15% range. And just kind of curious if you have any decent sense on where that might be going, going forward, as dining traffic goes from 70% to 100% and depending on where digital shakes out? Just curious how you think about that dynamic going forward? Thanks. Brian Niccol: Yes, sure. So I think we mentioned this in our comments earlier. But we hung on to about 80% of our digital sales and we're seeing about 70% of our dining room sales recaptured of where we were pre COVID. And what we're seeing is the overlap is still in that 15% plus range, people doing both channels, which leaves the door open for a lot of incremental occasions or different occasions. The one thing that is driving some of the bounce back in our dining room business is, we are seeing more business at lunch. And we're also seeing that lunch business occur Monday through Friday. And then when you look at kind of like suburban versus urban, that's another place we're starting to see clearly people return to work or return to normal, I would say, behaviors throughout the day. So, the lunch occasion is definitely coming back, while we're hanging on to all these new occasions around dinner and a lot of these off-premise occasions we've been talking about over time. I'm guessing, we'll continue to see the overlap slowly go up from here, because as more people return to the dining room, I'm hoping they've had really positive experiences digitally that will suggest, hey, want to give Chipotle a try in the dining room and vice versa. Hopefully, people that are dining room only people have heard great things about our rewards program, our digital system, and they'll start giving that a try. But the thing I love about the two business is, they serve different occasions, different needs, and I think that proves over the long run, these things are incremental or complementary. Dennis Geiger: It's very helpful. If I could slip just one more in. Just curious on the pricing increase point. If you could just comment at all on the customer resistance that you saw there, maybe how that stacked up relative to expectations and what that might mean as you think about the next increase? Thank you very much. Brian Niccol: Yes, sure. So, obviously, I think we talked about this before, Chipotle has a tremendous value proposition. We always have known - we have some pricing power. It's something we really would prefer to be the last thing we have to use. It made sense for us to take some action, specifically, in the delivery channel and then most recently across our menu. Consistent with the past, we saw very little resistance with the price increase in any of these channels. So, I would say, went as expected, and we'll continue to keep an eye on our value proposition going forward. And I would tell you the good news is I think our value proposition remains very strong. So that if we're faced with any headwinds that warrants the need for pricing, I think we can do it with confidence knowing that the brand is really strong and our value proposition is really strong. Operator: The next question comes from Andrew Charles of Cowen. Please go ahead. Brian Vieten: This is actually Brian Vieten on for Andrew. Thanks guys for the question. So, just thinking about long-term margins here, now that we're essentially back to peak AUVs as we look ahead kind of $3 million AUVs and beyond, just - I guess just philosophically what's the right way to think about the restaurant margins you can produce at that level, just given the efforts you guys have done to close the margin gap for delivery sales? Brian Niccol: Well, I'll start, and then Jack feel free to chime in. I think what you're hearing from us is we believe we've got a lot of growth still in front of us from a top line standpoint. And the model of how we flow these incremental dollars is very much strong, and in place to continue to be a leader in the industry on this front. And as I mentioned, we also have pricing power. So, you kind of pair those things up, you realize - look, we're going to do all the right things we can on the supply chain front, being as efficient as possible, investing in the things that matter to our customers and our employees. And then, obviously, I think we'll be rewarded with top line, and then accordingly, we'll figure out how best to flow that to the bottom line. But we love the situation we're in. We believe we're going to continue to drive growth from here. And we're very optimistic about our future. But, Jack, I don't know if you want to comment on anything else as it relates to this question? Jack Hartung: Yes. Listen, the data point that we shared today about when we grow our sales, we expect about 40% flow-through to the margin suggests there is still a lot of leverage as we grow our volumes from $2.5 million up to the $3 million, that our margin is going up. And I would just - in rough terms, I would say, from where we are today in the 24%, 25% range, we can add hundreds of basis points of margin as we move up from $2.5 million up to $3 million. And importantly, when we get into that range, we're going to have cash on cash returns on our restaurants, which today are very attractive at 60%, 65%, they're going to be in the 80%, 90%, even approaching 100% returns. And that's - frankly, internally, that's something we've always looked at. We know that if we generate superior returns on all of our invested capital that we can have lots of shareholder value and we expect that to only get better over time. Operator: The next question comes from John Glass of Morgan Stanley. Please go ahead. John Glass: First, just going back to pricing, just to level set, where will the effective pricing be in the third quarter, just given the price increase you took in the delivery? I just want to make sure I understand that in the context of your comp guidance. And related to that, Jack, I understand the mechanics of lowering restaurant margin with the increase in the labor. You made it sound like that's just going to be the way it is. But I think previously you've sort of talked about, well, we'll look at pricing over time, so that we can kind of get back to that one-to-one relationship with AUVs and margins. Is that still the goal or do you just think it should be lower because you don't want to get too aggressive on pricing in the near term? Jack Hartung: Yes, John, I mean, listen, there is still that possibility that we could take additional pricing action to fully close the gap. I just think there is so much going on right now with inflation and the question about whether inflation is transitory or permanent. We've got labor inflation. We took a big move there. We'll see how that shakes out. And now we've got the Delta variant as well. There's a lot of unknowns. And so what we don't want to do is sit here and declare that we're going to do something with certainly between now and the end of the year. I think we want to do is, let's see how the menu price continues to be accepted by customers, so far, really, really good, really seeing no resistance whatsoever. Let's see what happens to inflation, and let's see what happens to the economy over the next several months, and we'll make the appropriate decisions at the appropriate time. But I think the important thing, John, is that we've got a lot of upward mobility on our margins. We have pricing power. Now, it's just a matter of how and when we decide to use that pricing power to either protect margins or to invest in our people like we just did with the wages. But nothing has been locked and loaded in terms of what we will do between now and the end of the year. John Glass: And the effective pricing for the third quarter? Jack Hartung: Yes, John, it's - the Q2 was about 9%-ish call it. Q3 will be slightly higher. What happens is, you're going to get the full quarter for the wage menu price increase we just took. We got about a month worth of it in Q2. We'll get a full three months in the third quarter. But then we're also starting to lap the delivery increase that we started taking in the third quarter of last year. So to move from about, call it, a 9%-ish increase or the low-9% to about 10% in Q3. John Glass: And, Brian, just one more. Did the increase in wages solve largely the labor issue? Are you fully staffed in restaurants or you still needing to employ people even with those higher wages? And can you just talk about maybe the tenure of your employees now? I think in the past, tenured employees with great throughput. Maybe there's been more turnover just during COVID. Are you seeing the same kind of performance out of restaurants and throughput that you would hope for given this comp level? Brian Niccol: Yes. So, to answer your first question, the employee value proposition that we're bringing forward with the higher wages, the ability to grow into $100,000 opportunity in very short order has worked very well. And I give a lot of credit to our guys in the field with being out there, recruiting and retaining our talent. And we're in a really good labor spot relative to - as you look at our historical performances, we're back to where we were in 2019, and frankly, a little bit better, which is great to see. And also the growth in our Company is really resonating with our employees. Our General Managers know that they have the ability to become Field Leaders. And our Field Leaders know they have the ability to become Team Directors. And folks that are Shift Managers and Kitchen Managers know there's going to be a lots of General Manager jobs available. So, that's why I say the whole employee value proposition, I think, is really resonating. Combine that with the Company's purpose, and we've made tremendous progress on what was really a difficult situation that popped up in, call it, February and March with the business just frankly coming back faster than we were able to hire. But now our hiring has caught up. To answer your other part of the question, we still have work to do to get our grade throughput model back in place. It's been, gee, well over a year since folks all lines. And for some of our employees it's the first time they're seeing lines, and for customers too. Part of the process of getting people move down the line quickly is they need to know how to order, what they want to order, and getting back to individual meals, as well as our team members being quick to move them down the line, but doing it in an accurate way. So, we still have opportunity on the throughput front. But I think that's just a matter of retraining, building that muscle on our throughput pillars, and I'm confident we're going to capture that opportunity. Our operators are focused on it. Operator: The next question comes from David Tarantino of Baird. Please go ahead. David Tarantino: Brian, I'm curious I think - curious to know how you're thinking about the appropriate growth rate for the business going forward? If you think longer term, you have great returns on capital and the units. You have plenty of capital to put to work. So just wondering how you're thinking about unit development in particular and whether you can accelerate over the next few years? And maybe secondarily, whether Chipotle can return to being a 10% type unit growth story at some point in our future? Brian Niccol: Yes. Look, I think, here's the good news, David. I think every year since I've been here, we've been able to accelerate new units. And the good news is our operations are stronger. Our people capability, I think, is stronger. The P&L now is stronger. And I think you're seeing our ability to open more units get demonstrated, even in a difficult environment, right. We talked about how we plan on opening over 200 units this year. So, I think there's going to be an opportunity for us to continue to accelerate. The pace at which we do that, we're going to be probably more on the conservative side than putting the pedal to the metal on that one, because I just want to make sure we continue to open with excellence. And I know there is demand. I know the economics are excellent. And I know we have the people capability. I just want to keep doing it in a way where we're able to build upon our success and we have tons of runway in this space. So, optimistic about our ability to accelerate from here. What that ultimately looks like? As we get closer to each year, we'll probably have a better idea of what we can build on. Operator: The next question comes from David Palmer of Evercore ISI. Please go ahead. David Palmer: Just a quick follow-up. First on the pricing that you did on the delivery side, did you see a shift to mobile order and pickup? And do you think that's related? And if you did, was it related to the pricing at all? Brian Niccol: We saw a little bit of a move into our order ahead business, but it coincided, David, with also kind of everything reopening a lot more. So I don't know how much of that was driven by the pricing versus the fact that the customer was now more mobile, and they clearly saw the trade-off in paying for the convenience of delivery versus ordering ahead and picking up. But we saw very little resistance in our delivery business. So I think it's more to do with people wanting different occasions, and then what they want to pay for those occasions, and the fact that they're are more mobile, than frankly, the pricing driving those behaviors. But, Jack, I don't know if you want to add anything to that? Jack Hartung: No, Brian. I would say the same thing. We're really pleased with the trends. We didn't see anything that was a sudden resistance to the delivery menu price, but because it coincided with people becoming out and about a little bit more, we did see a little shift in that business. So, it's hard to sort through and figure out how much is due to pricing, how much was due to just people looking for the in-store ordering process. But the bottom line is our business moved up. It didn't move backwards, it definitely moved up when you combine all channels. Brian Niccol: Yes. And actually, I think, the only thing I'd add to that, David, is one thing we continue to learn is these occasions are unique. If you want a delivery occasion, you usually don't trade it off with an order ahead occasion. But the ability to have access to both is really powerful. So that's what I think Jack's point is like at the end of day, we saw - we didn't see a step back in our business, we continue to see steps forward. And I think it was more driven by the fact that people were more mobile, and then they realized these additional access points. David Palmer: And just related question about where this on-premise ordering will end up at the end of the day? The consumer has been trained to do digital ordering for you? If you - the on-premise ordering, it feels like it's something like $0.5 million per store lower than it was pre-COVID. And in some ways, you're not missing it because you'd have high margin digital orders, but some of this is probably going to come back because people are still little COVID cautious. You're worker shortages, work from home, and some of those things will burn off. So how do you think about the melt up in that on-premise order business? And how much of it maybe is semi permanently shifted to digital ordering? Brian Niccol: Yes. Look, I think - I mean, this is us just reading our consumer data, and granted we're only a couple of weeks really in where things are really been open and all our restaurants have been opened. But what is definitely clear is that on-premise occasion is a different occasion. And I think I mentioned this earlier, we only have about 15%, 17% of people overlapping between the occasions. And when you talk to folks that in-dining room experience - as much as we've replicated the in-line experience online, it's - there is still something to be said to walking down the line, seeing the food, getting the sights, the sound, the smells, and getting probably another level of customization that I think is very engaging to customers, and they want to have that experience. So, I think, our dining rooms are going to keep coming back. And I also think it's human nature, you want to eat out, like you like a change of scenery, people like to share a meal. And I've probably been one of the few that's keep saying dining rooms will come back, and I think if we give a great experience, they'll come back disproportionately to Chipotle. Operator: The next question comes from Chris Carril of RBC Capital Markets. Please go ahead. Chris Carril: So, how does the continued recovery of the dining room business factor into how you're thinking about the opportunities across different restaurant types or models with respect to your long-term development plans? And maybe related to that, could you also share any learnings so far from the digital-only restaurant you opened last year? Brian Niccol: Yes, sure. Look, that's why the focus for us is to build Chipotlanes. It give you all the access points, right. You can order ahead, pick it up in your car. You can order ahead, come in and grab and go. You can come through the line. And we're going to be focused on building as many Chipotlanes as possible. As we think about these digital-onlys or Chipotlane-onlys or these alternative formats, they really are - I think, about them as like seeing restaurants or opportunistic to the trade area to maximize Chipotle sales coming out of a trade area. But the focus area for us is Chipotlane. We want all the access modes for our customers. Because at the end of the day, I could keep talking about these are different occasions, arguably, you're almost a different consumer when you decide you want to do digital versus being a dining room customer. So that's what we're after. I think it's what our customers want. And I think it's what maximizes returns for us. Specifically, our digital-only restaurant in the trade area where it made sense to do it is doing really well. But you know what, if the trade area supported putting a Chipotlane, I'll put a Chipotlane in there. Operator: The next question comes from Jared Garber of Goldman Sachs. Please go ahead. Jared Garber: Somewhat of a follow-up to the last question and your commentary, Brian. I'm just curious how you guys are thinking about sort of the Chipotlane opportunity over the longer term? Obviously, about 80% of the new units this quarter had a Chipotlane versus I think like sort of the traditional guidance of about 70%. If we think about that opportunity over the next several years, are there dayparts, are there menu innovation items beyond sort of the Quesadilla that you're thinking about that can really only be served with Chipotle in that sort of some sort of critical mass that we should be thinking about over the longer term? Brian Niccol: Yes. Look I definitely think as you get more penetration, the Chipotlane asset, it gives us another opportunity for our operating platform. And the thing I love is we've got a multi-billion dollar digital business that over time is going to have more access, right. So, of course, we're going to figure out how to maximize that, whether that's dayparts, whether that's menu. So, as we get more penetration on these access points for our digital business, they give customers less friction and more convenience, we'll figure out how our operators can best serve it. But the thing I love is the Quesadilla has demonstrated, we can run innovation of our digital business without impacting our dining room business. And I think we are also going to be able to run innovation on our dining room business without impacting our digital business. And our operators have done a great job of using great culinary with single kitchen back there to then service two businesses, whether it's our digital make line business or our front-line business. So that's how I would think about it. Jared Garber: Thanks. And then are there any operational changes you're thinking about as you fully recapture? I know you're - it's about 70% of in-restaurant dining today, obviously, as that continues to increase, if we were to assume that your digital business remains really robust and that's additive business when things sort of fully normalize, you talked about some tech investments that you're making. Are there sort of remodel thoughts about what a sort of a Chipotle of the future might look like as you balance out maybe a very robust in-restaurant experience with the digital side as well? Brian Niccol: Yes. Look, the way I would describe it is we're going to be investing in ways to get better throughput executed in both the digital make line and our front line. And we're looking at investments on helping our teams with smarter prep, having the right food available at the right time, better forecasting, better staffing. These are all things that will just allow us, frankly, to provide more burritos and bowls digitally, as well as more burritos and bowls on the front line. So, we're really focused on the fact that we got a lot of capacity in these restaurants. So whatever we can do to invest in our people or our operation to enable them to provide more burritos and bowls per minute is a huge leverage point for us. So that's like - at the highest level, that's how I think about it. I mean there is various things and simple projects that provide certain benefits, but the higher order thing we're after is how do we ultimately end up with just enhanced throughput, both for the digital business and the front-line business and in such a way where we still get no compromise on customization, quality of food and now our digital business accuracy. Operator: The next question comes from John Ivankoe of JPMorgan. Please go ahead. John Ivankoe: I guess at this point in the call, I was curious if we could have some color about dine-in, and I guess the relationship between dine-in and off-premise broadly in the markets that have been opened the longest like the Southeast and Texas versus, I guess, the Northeast and West Coast, how much of a difference in kind of customer flow are you seeing kind of '21 versus '19? And are there some, perhaps, leading indicators that we can talk about as all markets, I guess, fully normalize and become the same in 2022? Brian Niccol: Yes. Look, I would tell you that I think the most important leading indicator for us is we're starting to see our lunch business come back. And what's great about that lunch business is, it's usually an individual that, frankly, we haven't seen in a while. And while that's occurring, we still have these, what I would call, the group occasions, that back in 2019, Chipotle didn't participate in to the level that we're participating in. We have started our journey of getting into these group occasions, in these off-premise occasions, but COVID really accelerated that. So what I would tell you is probably the best piece of news that I've seen in our data is to see that our lunch business is coming back, because as soon as people are given the opportunity to go back to their behaviors of going into their office, dropping their kids off at school, activities, whatever it may be, they're back to wanting to eat our lunch. And that's an on-premise occasion that we have seen a nice uptick probably. Operator: The next question comes from Nick Setyan of Wedbush Securities. Please go ahead. Nick Setyan: I wanted to go back to the longer-term commentary on margins again. I think you said 40% flow-through, if I take every $100,000 from $2.5 million, I think that implies about 50 bps of margin uptick per $100,000 or so. I guess is that separate from any future price increases? And also, how are you thinking about sort of labor inflation and overall inflation, in general, as we kind of progress from this $2.5 million AUV to $3 million over the next few years? Jack Hartung: Yes. Nick, listen, that 40% flow-through is something that will happen if we don't have anything out of the ordinary happening with inflation, meaning if inflation just settles into a normal cadence and we use some of our pricing power to offset that, we'll have the ability to flow that 40% through. If you have a dislocation for some period of time, that 40% is going to vary. But we know, as I mentioned a few minutes ago, when we know we have pricing power, we're in a position, because we're all company owned and we take a long-term view, we can watch how the inflation unfolds over the next few months, the next few quarters, we can see how much is transitory, how much is going to be permanent, and we can take the right pricing action at the right time. So, we don't have to be in a hurry to do it like some franchise organizations might be - feel a little bit more pressure to do that. But the 40% flow-through that assumes just kind of over a longer period of time as you're moving from this $2.5 million volume up to $3 million that is long is over that period of time, maybe not every quarter, maybe not every year, but over that period of time, we're able to offset inflation with some modest pricing increases, we can have that 40% flow-through. Nick Setyan: And then just on the smoked brisket near term, is the timing on that Q4 or Q3? Brian Niccol: Yes. Go ahead, Jack. Jack Hartung: Yes. That was timing on a menu price increase, yes, we haven't made a decision on... Brian Niccol: No. Jack, he was asking about brisket. Jack Hartung: Oh, okay. Go ahead, Brian. That yours. Brian Niccol: Well, I do love the brisket. Thank you, Jack. The answer is it's been validated in our stage-gate process. We've not nailed down exactly when we'll do it. But it's always nice to have it ready to go. And we'll look at the marketplace, and we'll figure out the best time to do it. Operator: The next question comes from Peter Saleh of BTIG. Please go ahead. Peter Saleh: Brian, just wanted to come back to that conversation on the brisket for a second. I know you're not disclosing an exact time of launch. But can you talk maybe a little bit about how you're positioning in the menu? Is something else coming off to make room for the brisket, or is this going to be purely incremental on the menu? Brian Niccol: Yes. So right now, our plan is it will be a seasonal item. And that's the way we tested it and validated it. So, it's a nice incremental occasion is what we've seen. And I look forward to you everybody getting an opportunity to try it, because it's also delicious. Peter Saleh: And just on the cash balance, I know you guys had indicated about $1.2 billion of cash and investments. I think, Brian, you also indicated, you'll be a little more prudent maybe in development going forward, making sure that you're building the right unit. So, what's the right amount of cash to hold here? I know you guys announced a little bit more on share repo. But any thoughts around maybe returning more of that capital to shareholders through a special dividend or an ongoing dividend anything of that sort? Brian Niccol: Yes. Well, first of all, I don't want you to misconstrue my comments on new units. Our plan is to continue to demonstrate that we have the ability to add more units. We've done it every year. Every year, we accelerated. And I think we're going to still be able to do that. So - and the good news is, we have the cash to do it. And we also know there is no better investment with our cash than to build more Chipotle. So, that's always going to be the first priority. And then, obviously, I think Jack talked about in his remarks earlier our share buyback program that's going to continue to be a part of the puzzle, but there is no plans for dividend. Jack, I don't know if you wanted to add anything? Jack Hartung: No. Listen, I would agree with that. I only thing I would add is that, we are - we've taken during COVID, and as we now look at the Delta variant and there is some uncertainty with that, we've been even more conservative than normal with our balance sheet. But what I think you can expect to see is, as things stabilize, as they become more predictable, we'll be able to return even more value to shareholders through buybacks. But we also have the revolver as well, which gives us a little bit of breathing room. But last year when the pandemic started, it became pretty clear that these were very different time and we needed to make sure that we had enough assets or enough cash in the balance sheet, so we can invest in our people, invest in technology, continue to open up our restaurants, and not give up on any of our long-term strategies. And so we're still retaining a bit of a conservatism with managing our balance sheet. But again, as things become more certain, you can expect to see more buybacks in the future. And again, it will be optimistic. We will take advantage when the price moves down just like we did during this quarter. Operator: Our next question comes from Jon Tower of Wells Fargo. Please go ahead. Jon Tower: A lot of them have been answered already. But I guess I'll circle back on the loyalty platform. The 23 million members that you have today, can you talk about maybe how much that represents of the total customer base today? And then, can you quantify how the rewards member uses the brand versus a non-rewards member with respect to frequency, the spend, the mobile ordering platform versus perhaps just picking up at the store using delivery? And can you maybe even tell us how much that percentage - how much of loyalty membership represents as a percentage of total sales? Brian Niccol: So, let me - few different questions there. First of all, the rewards program probably represents about 25% of our customers roughly, is the way to think about it. And the thing that's great about our rewards customers are, they have a higher ticket, they have higher frequency, because usually they are more skewed towards digital, which is consistent with what we see in our digital business. And I do believe as we continue to enhance things like our rewards program, now you can redeem your points for lower denominations and get like chips and guac or a T-shirt or whatever, that's just going to dial-up engagement for people. We didn't change the reward necessary to achieve a burrito, but we did enhance opportunities to engage with the brands at different levels. So, I think that's going to be enticing for more people to join the rewards program. And those that are in, will continue, I think, to incentivize their behavior accordingly. So, I think I've covered all of them. Was that all your questions? Jon Tower: Yes. I think you nailed it. So, thank you. I appreciate it. Brian Niccol: All right, great. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brian Niccol, Chairman and CEO, for any closing remarks. Brian Niccol: Okay. Yes. Thank you. And thanks everybody for joining us. Obviously, I'd be remiss if I didn't repeat what I said earlier, which is a huge thank you to everybody in our organization, all of our operational leaders and folks in our restaurants. I think they have really demonstrated the power of great people, great leaders, great culture, drives great results. And this quarter is truly a reflection of that without a doubt. The other thing I want to touch on is, obviously, we're very optimistic about Chipotle's long-term growth plans. I think we have the ability to grow units, grow average unit volumes, grow margins, frankly, grow everything you want to grow, and then at the same time, grow our organization. So people have the opportunity to grow with this Company and participate in all this wonderful growth. And that's really what I think is driving the strong employee value proposition that's resulting us being able to staff our restaurants at an effective rate right now. So, very proud of this organization. Very proud of our results. And also very optimistic about the future. So, thank you for joining us. And we're going to get back to cultivating a better world. All right. Thanks, everybody. 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.
