Chipotle raised prices on several products from 3.5% to 4%. Comps are a more relevant metric for restaurant stocks as they measure the revenue in restaurants that were open a year ago, whereas overall revenue can get a boost from new locations opening up. Posting high-single-digit growth is encouraging for Chipotle investors, particularly when the economy is far from ideal with inflation weighing on consumers. Restaurant stocks can enjoy operating leverage when sales volume per location increases, maximizing labor productivity and getting the most out of property and equipment.
Why Chipotle Mexican Grill Stock Soared Today
The company also opened 42 new locations during the quarter, bringing its store count to over 3,0000. While many fast-food restaurants have been struggling with growth lately, Chipotle has still been posting strong numbers. For the first three months of 2024, revenue rose by 14% to $2.7 billion. Chipotle’s stock split will be subject to shareholder approval at Chipotle’s annual meeting on June 6. If approved, shareholders on record as of June 18 will receive an additional 49 shares for each share held after market close on June 25. While the stock split won’t change the value of Chipotle’s business, it would bring current share prices down from nearly $3,173 (as of writing) to about $63.
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- Shares of burrito-centric restaurant chain Chipotle Mexican Grill (CMG -7.50%) jumped 37% in the first half of 2024, according to data provided by S&P Global Market Intelligence.
- Chipotle reached the previous target of $2.5 million in the most recent quarter and simultaneously raised it to $3 million.
- However, that wasn’t the only piece of good news from Chipotle in the quarter.
- At such a high valuation, investors are pricing in a lot of strong continued growth.
- These locations not only increase accessibility and convenience for hungry customers, but they can also drive up sales, profit margins, and returns on invested capital.
This was also up from a restaurant-level operating margin of 24% in 2022’s Q4 and 23.9% for the full year of 2022. Some key factors helping its restaurant-level operating margin were increased sales, labor efficiencies, and lower avocado prices, management said during the company’s Q1 earnings call. Capturing how Chipotle is doing better than management anticipated, the company’s same-store sales growth rate in Q1 came in above the guidance management provided at the time of its Q4 report. Chipotle had guided for Q1 comparable-restaurant sales to increase at a rate in the high-single digits, yet the key figure came in at nearly 11%. Consumer prices are up about 15% in the U.S. over the last two years as inflation hovers far above historic levels.
Here’s Why Chipotle Mexican Grill Stock Jumped 37% in the First Half of 2024
Sales were boosted by same-store-sales growth of 7% and new restaurant openings. Menu prices were up but this wasn’t the primary booster of the sales numbers. In reality, Chipotle benefited from 5% growth in transactions, which is the better driver of financial results.
Chipotle Stock Is Up 39% This Year. What’s Happening With The Company?
The Tex-Mex fast-casual dining chain opened 271 new restaurants in 2023, bringing the total store count to 3,437. About 88% of these were built with a Chipotlane, which is what the business calls its popular drive-thru format. These locations not only increase accessibility and convenience for hungry customers, but they can also drive up sales, profit margins, and returns on invested capital. Besides these quarterly financial results, there was a prevailing bullish wind for Chipotle stock for much of the first half of the year due to its proposed 50-for-1 stock split.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. The burrito chain’s operating margin on a restaurant level has also been improving significantly. Chipotle’s Q1 restaurant-level operating margin rose 490 basis points year over year to 25.6%.
Compared to 2022’s fourth quarter, the company’s revenue increased by 15.4%, driven by an 8.4% rise in same-store sales. What’s noteworthy is that Chipotle reported an impressive 7.4% jump in transaction counts, indicating that foot traffic at its restaurants remains robust despite ongoing macroeconomic uncertainty. Like many other businesses, Chipotle is struggling with widespread inflation, so the popular burrito chain passed on its higher expenses to its customers via menu price hikes. Those increases, combined with its traffic growth, lifted Chipotle’s restaurant-level and companywide operating margins to 25.2% and 15.3%, respectively, up from 24.5% and 13% in the prior-year period. The company said it expects full-year comparable store sales growth in the mid-single-digit percentage range, and to add 285 to 315 new restaurants. Then on April 24, Chipotle reported results for the first quarter of 2024, which showed 14% year-over-year top-line growth.
On Feb. 6, Chipotle reported record revenue of $9.9 billion for 2023, which excited investors and boosted the stock. During the year, the company opened a record 271 new locations. And locations that had been open at least 13 months saw a strong same-store-sales increase of 8%.
Some bullish investors might argue that the valuation is warranted given the sizable growth potential, but I don’t agree with this perspective. There’s just no margin of safety, with expectations so sky-high. It’s as if the market already thinks the business has 7,000 stores open. However, that wasn’t the only piece of good news from Chipotle in the quarter. The markets are concerned about how businesses are dealing with rising prices for commodities and labor. Therefore, investors were pleased when the company instituted price increases, and sales didn’t react poorly.
When revenue is growing at a good pace and profits are growing even faster, it often works out well for investors. And that was on full display for Chipotle’s shareholders in the first half of 2024. Indeed, over the last five years, Chipotle’s operating margin has more than doubled, leading to a dramatic increase in operating profit. Chipotle has outperformed the broader market in spectacular fashion, but I think shares are priced to perfection right now. As a result, it’s best that investors wait for a better entry point before buying the stock. Chipotle’s (CMG -7.50%) stock is sizzling hotter than steak fajitas in 2021.
Should Chipotle reach its long-term objectives, it would be pulling in $28 billion in yearly revenue. And with ongoing efforts to implement efficiencies and improve profitability, the bottom line can rise at an even faster clip. Even though Chipotle’s growth over the last few years has been remarkable, the leadership team isn’t resting on its laurels. Chipotle brought in $2.4 billion in sales and $292 million in profit over the first three months of 2023, both record numbers for the firm. The company has performed exceptionally well even amid a challenging economy.
But investors should always consider a stock’s valuation, because that can have a significant impact on the returns the shares might be able to generate. If a multiple is high, then it effectively means that investors are paying for a lot of future growth, and it could take years before an investment generates strong returns. The company said that food, beverage, and packaging expenses were up 40 basis points (bps) to 29.7% of total revenue, as it faced higher beef, produce, and queso costs. However, it pointed out that those gains were partially offset by higher menu prices, and to a lesser extent, lower paper costs.
And even though this isn’t a fundamental driver for the stock price over the long term, it did still excite investors, causing shares to trend higher. Shares of burrito-centric restaurant chain Chipotle Mexican Grill (CMG -7.50%) jumped 37% in the first half of 2024, according to data provided by S&P Global Market Intelligence. The chart shows a steady increase throughout the six-month span, accentuated with two bigger single-day moves. Those larger jumps happened each time the company reported quarterly financial results. In other words, the scalability of Chipotle’s business model means that the company’s operating margin expands as sales increase. To this end, Chipotle’s operating income soared 93.3% year over year in Q1.
Or maybe equally as beneficial, digital orders for pickup or delivery are added occasions where people choose to buy Chipotle. News of a stock split did generate interest recently, but investors shouldn’t rely on that momentum lasting if its results don’t remain strong. At such a high valuation, investors are pricing in a lot of strong continued growth. And if that doesn’t happen, the stock might be vulnerable to a sell-off given its high valuation.
Chipotle has raised its menu prices numerous times over the past couple years, yet consumers still appear to find lots of value in the burritos and bowls. Chipotle’s stock is up 47% year to date and 30% in the last three months. The recent quarter results were excellent, but the positive expectation may have gotten priced into the stock too quickly. After all, it has yet to report quarterly results since raising the long-run AUV target.
After all, it has only been one quarter since economies fully reopened. The coronavirus pandemic had the potential to cripple Chipotle’s business, and instead, the company could be in a better position now than before the outbreak. In its most recent quarter, finishing up on June 30, the company said it recovered 70% of its on-premise business while maintaining 80% of digital sales. That’s giving the market the impression that Chipotle gained a mass of new customers during the pandemic.
Moreover, investors still don’t know how sales were impacted during the coronavirus surge caused by the delta variant. “We are pleased with our second quarter performance during a period of inflation and consumer uncertainty,” CEO Brian Niccol said in the press release. “Our pricing power and value proposition remain strong as our culinary and food with integrity commitment continues to be a key point of differentiation.” Shares of Chipotle Mexican Grill (CMG -7.50%) surged on Wednesday after the restaurant chain generated stronger-than-expected profits in the second quarter. But paying such a steep multiple for a stock that is growing by 14% appears excessive; it could be overdue for a correction. And the stock’s price/earnings-to-growth ratio (PEG) of 2.7 also suggests the valuation has become a bit extreme.