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Chipotle (CMG) Rides on Digitization Efforts, Cost Woes Stay
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Shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) have gained 2.3% in the past three months against the industry’s 8.4% fall. The company benefits from its digital efforts, Chipotlane add-ons and marketing initiatives. This along with strength in digital sales, rise in menu prices, new restaurant openings and higher restaurant-level operating margins have been driving the company. However, higher expenses and coronavirus-induced soft traffic are a headwind.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Key Catalysts
Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and highly efficient for restaurants. The company redesigned and simplified the online ordering site, enabled online payment for catering and collaborated with several well-known third-party providers for delivery. Since its Smarter Pickup Times technology rollout, there has been a significant increase in digital orders and guest satisfaction. During fourth-quarter 2021, digital sales increased 3.8% year over year to $811.3 million. The company witnessed a rise in order-ahead transactions, owing to enhanced guest access and convenience.
Image Source: Zacks Investment Research
Chipotle is also gaining from the rollout of Chipotlanes. During fourth-quarter 2021, the company opened 78 new restaurants, out of which 67 had Chipotlane in them. The addition of Chipotlanes enhanced customer access and convenience and bolstered new store restaurant sales, margins and returns. It continues to expand its digital drive with Chipotlanes. As of December 2021, it had a total of 355 Chipotlanes.
Backed by impressive unit economics and success of small-town locations, the company anticipates operating more than 7,000 restaurants over the long term in North America compared with the previous goal of 6,000 restaurants. CMG emphasized building a real estate pipeline with more than 80% of the restaurants having Chipotlane. The company anticipates an annual unit growth rate of 8-10%.
Impressive comps performance continues to drive growth. Despite the coronavirus crisis, the company reported comps growth for the sixth straight quarter. During fourth-quarter 2021, comparable restaurant sales increased 15.2% year over year, following growth of 15.2% (in third-quarter 2021), 31.2% (in second-quarter 2021), 17.2% (first-quarter 2021) and 5.7% (fourth-quarter 2020). Consistent strength in digital sales, solid recovery of in-restaurant sales and positive customer reception to new menu items contributed to the company’s results. For first-quarter 2022, the company expects comps growth in the range of mid-to-high-single digits.
Chipotle is focused on boosting sales to stay afloat in the competitive environment. The introduction of new items, solid marketing activities that include a combination of brand-building efforts as well as transaction-driving promotions and advertising are likely to lead to a steady inflow of new customers. Chipotle intends to emphasize on Tractor beverages, which is subject to the normalization of the pandemic scenario. increased focus on the stage-gate process, leveraging digital programs to expand access and convenience, frequent customer interaction through its loyalty program, menu innovation and operational excellence are likely to benefit the company. These factors will help customers to resonate more with the company.
Concerns
Chipotle has been continuously incurring increased expenses, which have been detrimental to margins. Like other industry players, the company has been facing significant supply chain challenges and inflation across most commodities and categories. During fourth-quarter 2021, food, beverage and packaging costs, as a percentage of revenues, increased 60 basis points (bps) year over year to 31.6%. The upside was primarily driven by a rise in beef, freight and avocado costs.
Pandemic-induced restrictions and labor challenges had taken an enormous toll on the company. Although most dining services are open, traffic is still low compared with pre-pandemic levels. Going forward, the company intends to monitor the situation on a regular basis to gauge the impacts of COVID-19.
Some better-ranked stocks in the same space include BBQ Holdings, Inc. , Dave & Buster's Entertainment, Inc. (PLAY - Free Report) and Arcos Dorados Holdings Inc. (ARCO - Free Report) .
BBQ Holdings sports a Zacks Rank #1. BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have gained 41.5% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and earnings per share (EPS) suggests growth of 40.9% and 66.2%, respectively, from the year-ago period’s levels.
Dave & Buster's sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 212%, on average. Shares of the company have declined 4.8% in the past year.
The Zacks Consensus Estimate for Dave & Buster's current year sales and EPS suggests growth of 24.4% and 49.3%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2 (Buy). Arcos Dorados has a long-term earnings growth of 31.3%. Shares of the company have risen 54.7% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 10.3% and 62.5%, respectively, from the year-ago period’s levels.
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Chipotle (CMG) Rides on Digitization Efforts, Cost Woes Stay
Shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) have gained 2.3% in the past three months against the industry’s 8.4% fall. The company benefits from its digital efforts, Chipotlane add-ons and marketing initiatives. This along with strength in digital sales, rise in menu prices, new restaurant openings and higher restaurant-level operating margins have been driving the company. However, higher expenses and coronavirus-induced soft traffic are a headwind.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Key Catalysts
Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and highly efficient for restaurants. The company redesigned and simplified the online ordering site, enabled online payment for catering and collaborated with several well-known third-party providers for delivery. Since its Smarter Pickup Times technology rollout, there has been a significant increase in digital orders and guest satisfaction. During fourth-quarter 2021, digital sales increased 3.8% year over year to $811.3 million. The company witnessed a rise in order-ahead transactions, owing to enhanced guest access and convenience.
Image Source: Zacks Investment Research
Chipotle is also gaining from the rollout of Chipotlanes. During fourth-quarter 2021, the company opened 78 new restaurants, out of which 67 had Chipotlane in them. The addition of Chipotlanes enhanced customer access and convenience and bolstered new store restaurant sales, margins and returns. It continues to expand its digital drive with Chipotlanes. As of December 2021, it had a total of 355 Chipotlanes.
Backed by impressive unit economics and success of small-town locations, the company anticipates operating more than 7,000 restaurants over the long term in North America compared with the previous goal of 6,000 restaurants. CMG emphasized building a real estate pipeline with more than 80% of the restaurants having Chipotlane. The company anticipates an annual unit growth rate of 8-10%.
Impressive comps performance continues to drive growth. Despite the coronavirus crisis, the company reported comps growth for the sixth straight quarter. During fourth-quarter 2021, comparable restaurant sales increased 15.2% year over year, following growth of 15.2% (in third-quarter 2021), 31.2% (in second-quarter 2021), 17.2% (first-quarter 2021) and 5.7% (fourth-quarter 2020). Consistent strength in digital sales, solid recovery of in-restaurant sales and positive customer reception to new menu items contributed to the company’s results. For first-quarter 2022, the company expects comps growth in the range of mid-to-high-single digits.
Chipotle is focused on boosting sales to stay afloat in the competitive environment. The introduction of new items, solid marketing activities that include a combination of brand-building efforts as well as transaction-driving promotions and advertising are likely to lead to a steady inflow of new customers. Chipotle intends to emphasize on Tractor beverages, which is subject to the normalization of the pandemic scenario. increased focus on the stage-gate process, leveraging digital programs to expand access and convenience, frequent customer interaction through its loyalty program, menu innovation and operational excellence are likely to benefit the company. These factors will help customers to resonate more with the company.
Concerns
Chipotle has been continuously incurring increased expenses, which have been detrimental to margins. Like other industry players, the company has been facing significant supply chain challenges and inflation across most commodities and categories. During fourth-quarter 2021, food, beverage and packaging costs, as a percentage of revenues, increased 60 basis points (bps) year over year to 31.6%. The upside was primarily driven by a rise in beef, freight and avocado costs.
Pandemic-induced restrictions and labor challenges had taken an enormous toll on the company. Although most dining services are open, traffic is still low compared with pre-pandemic levels. Going forward, the company intends to monitor the situation on a regular basis to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Chipotle currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include BBQ Holdings, Inc. , Dave & Buster's Entertainment, Inc. (PLAY - Free Report) and Arcos Dorados Holdings Inc. (ARCO - Free Report) .
BBQ Holdings sports a Zacks Rank #1. BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have gained 41.5% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and earnings per share (EPS) suggests growth of 40.9% and 66.2%, respectively, from the year-ago period’s levels.
Dave & Buster's sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 212%, on average. Shares of the company have declined 4.8% in the past year.
The Zacks Consensus Estimate for Dave & Buster's current year sales and EPS suggests growth of 24.4% and 49.3%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2 (Buy). Arcos Dorados has a long-term earnings growth of 31.3%. Shares of the company have risen 54.7% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 10.3% and 62.5%, respectively, from the year-ago period’s levels.