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Impressive Comps Growth Aid Chipotle (CMG), Inflation Hurts
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Chipotle Mexican Grill, Inc. (CMG - Free Report) benefits from impressive comps performance, digitalization and expansion efforts. However, high inflation is hurting the company. In the past year, the company’s shares have declined 15.2% compared with the industry’s fall of 18.8%. Let’s delve deeper.
Growth Drivers
Impressive comps performance continues to drive growth. Despite the pandemic, the company reported comps growth for the seventh quarter. During the first quarter, comparable restaurant sales increased 9% year over year, following growth of 15.2% (in fourth-quarter 2021), 15.1% (third-quarter 2021), 31.2% (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 2022, the company expects comps growth in the range of 10-12%.
The company is also focusing on Chipotlane expansion. During the fourth, third and second quarters of 2021, Chipotle opened 78, 41 and 56 new restaurants, out of which 67, 36 and 45 had Chipotlane, respectively. During first-quarter 2022, Chipotle opened 51 new restaurants, including 42 Chipotlanes. 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. The company has opened a digital-only kitchen as well.
Backed by impressive unit economics and the success of small-town locations, the company anticipates operating more than 7,000 restaurants over the long term in North America. 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%.
Moreover, partnerships with Uber Eats and Grubhub are attracting new customers. The company has also expanded digital capabilities into Canada. Moreover, collaboration with all the major third-party delivery aggregators has increased orders. To boost convenience in the digital ordering platform, the company has also initiated features such as unlimited customization, contactless delivery and group orders. The company is also focused on robotics-based autonomous vehicles for delivery, which will likely enhance the customer experience in the upcoming periods. Digital sales contributed 41.9% to sales during the during first-quarter 2022. The company witnessed a rise in order-ahead transactions, courtesy of enhanced guest access and convenience. This and with Chipotlanes’ add-ons drove the company’s performance.
Image Source: Zacks Investment Research
Hurdles to Cross
The company, like other industry players, has been facing significant supply chain challenges and inflation across most commodities and categories. During first-quarter 2022, food, beverage and packaging costs, as a percentage of revenues, increased 100 basis points (bps) year over year to 31%. The upside was primarily driven by a rise in beef, paper and avocado costs. However, this was partially offset by benefits from menu price increases. Labor costs (as a percentage of revenues) during the quarter came in at 26.3%, reflecting an increase of about 140 basis points from the last year. This increase was driven by its strategy to bolster average nationwide wages to $15 per hour. For second-quarter 2022, the company anticipates labor costs to be in the mid-24% range on account of leverage from menu price increases and seasonally higher sales.
Dollar Tree sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 13.1%, on average. Shares of the company have gained 57.2% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Dollar Tree’s 2022 sales and earnings per share (EPS) suggests growth of 6.7% and 40.5%, respectively, from the year-ago period’s levels.
BBQ Holdings carries a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have decreased 43.2% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. Arcos Dorados has a long-term earnings growth of 34.4%. Shares of the company have risen 14.7% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 16.6% and 83.3%, respectively, from the year-ago period’s levels.
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Impressive Comps Growth Aid Chipotle (CMG), Inflation Hurts
Chipotle Mexican Grill, Inc. (CMG - Free Report) benefits from impressive comps performance, digitalization and expansion efforts. However, high inflation is hurting the company. In the past year, the company’s shares have declined 15.2% compared with the industry’s fall of 18.8%. Let’s delve deeper.
Growth Drivers
Impressive comps performance continues to drive growth. Despite the pandemic, the company reported comps growth for the seventh quarter. During the first quarter, comparable restaurant sales increased 9% year over year, following growth of 15.2% (in fourth-quarter 2021), 15.1% (third-quarter 2021), 31.2% (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 2022, the company expects comps growth in the range of 10-12%.
The company is also focusing on Chipotlane expansion. During the fourth, third and second quarters of 2021, Chipotle opened 78, 41 and 56 new restaurants, out of which 67, 36 and 45 had Chipotlane, respectively. During first-quarter 2022, Chipotle opened 51 new restaurants, including 42 Chipotlanes. 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. The company has opened a digital-only kitchen as well.
Backed by impressive unit economics and the success of small-town locations, the company anticipates operating more than 7,000 restaurants over the long term in North America. 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%.
Moreover, partnerships with Uber Eats and Grubhub are attracting new customers. The company has also expanded digital capabilities into Canada. Moreover, collaboration with all the major third-party delivery aggregators has increased orders. To boost convenience in the digital ordering platform, the company has also initiated features such as unlimited customization, contactless delivery and group orders. The company is also focused on robotics-based autonomous vehicles for delivery, which will likely enhance the customer experience in the upcoming periods. Digital sales contributed 41.9% to sales during the during first-quarter 2022. The company witnessed a rise in order-ahead transactions, courtesy of enhanced guest access and convenience. This and with Chipotlanes’ add-ons drove the company’s performance.
Image Source: Zacks Investment Research
Hurdles to Cross
The company, like other industry players, has been facing significant supply chain challenges and inflation across most commodities and categories. During first-quarter 2022, food, beverage and packaging costs, as a percentage of revenues, increased 100 basis points (bps) year over year to 31%. The upside was primarily driven by a rise in beef, paper and avocado costs. However, this was partially offset by benefits from menu price increases. Labor costs (as a percentage of revenues) during the quarter came in at 26.3%, reflecting an increase of about 140 basis points from the last year. This increase was driven by its strategy to bolster average nationwide wages to $15 per hour. For second-quarter 2022, the company anticipates labor costs to be in the mid-24% range on account of leverage from menu price increases and seasonally higher sales.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Dollar Tree Inc. (DLTR - Free Report) , BBQ Holdings, Inc. and Arcos Dorados Holdings Inc. (ARCO - Free Report) .
Dollar Tree sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 13.1%, on average. Shares of the company have gained 57.2% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Dollar Tree’s 2022 sales and earnings per share (EPS) suggests growth of 6.7% and 40.5%, respectively, from the year-ago period’s levels.
BBQ Holdings carries a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have decreased 43.2% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. Arcos Dorados has a long-term earnings growth of 34.4%. Shares of the company have risen 14.7% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 16.6% and 83.3%, respectively, from the year-ago period’s levels.