We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Chipotle (CMG) Banks on Digital Initiatives Amid Inflation
Read MoreHide Full Article
Chipotle Mexican Grill, Inc. (CMG - Free Report) is benefiting from a robust digital program, the inclusion of Chipotlane and strategic marketing initiatives. Shares of CMG have gained 11.9% over the past three months compared with the Zacks Retail - Restaurants industry’s growth of 4.3%.
Earnings estimates for 2023 have moved north to $41.39 per share from $41.38 over the past 30 days, depicting analysts' optimism over the company’s growth prospects.
However, CMG’s growth trend is restricted by supply chain risks and increased costs, inflation and reduced traffic.
Image Source: Zacks Investment Research
Let us discuss the factors broadly.
Growth Drivers
Chipotle is focusing on expanding its digital program to drive growth. Chipotle has redesigned and simplified its online ordering site, enabled online payment for catering and online meal customizations and collaborated with several well-known third-party providers for delivery. Also, there has been a significant increase in digital orders and guest satisfaction since the rollout of its “Smarter Pickup Times” technology. During the third quarter of 2022, the company initiated the testing of advanced location-based technology to enhance the Chipotle app functionality. During the second quarter of 2022, the company initiated investments in Hyphen, which is a digital food service platform. Digital sales contributed 39% to sales in 2022.
The addition of Chipotlane enhanced customer access and convenience, and bolstered new store restaurant sales, margins and returns for Chipotle. As of Dec 31, 2022, the company opened 236 new restaurants, of which 202 included Chipotlane. The company expects to open 255-285 restaurants (2023), with at least 80% of them including a Chipotlane.
Chipotle is working on strengthening its brand and recovering sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, enhancement of guest experience, technology-driven convenience and more aggressive brand marketing. It is implementing practices like minimal food waste disposal, recycling and compost programs for food packages, using reusable lids to replace plastic wraps and participating in the Harvest Program to donate leftover food to local communities. During the second quarter of 2022, the company rolled out an updated training program — Project Square One. This includes training around throughput, digital execution, food quality and hospitality to deliver an exceptional customer experience.
Headwinds
Chipotle has been facing significant supply chain challenges and inflation across most commodities and categories. As of 2022-end, the food, beverage and packaging costs increased 3% to $638.9 million compared with $620.2 million in 2021-end. The increase was due to inflation across the menu, primarily due to higher costs for avocados, packaging, dairy, beef and chicken. Labor costs increased 8.1% from the past year to $558.9 million. For 2023, our projection for labor costs indicates an increase of 13.7% year over year.
Chipotle operates in the retail restaurant space that is highly dependent on consumer discretionary spending. Consumers’ propensity to spend largely depends on the overall macroeconomic scenario. The restaurant industry is facing declining traffic for quite some time now. A rapid increase in menu prices is the primary reason behind the traffic erosion. Thus, it can be said that CMG is highly vulnerable to the inconsistent nature of consumer discretionary spending.
Here are some top-ranked stocks that investors may consider in the Zacks Retail-Wholesale sector.
Tecnoglass Inc. (TGLS - Free Report) sports a Zacks Rank #1 at present. TGLS delivered a trailing four-quarter earnings surprise of 21.5%, on average. Shares of the company have gained 97.2% in the past six months.
The Zacks Consensus Estimate for TGLS’s 2023 sales and EPS suggests growth of 13.4% and 15.4%, respectively, from the year-ago period’s reported levels.
Chuy's Holdings, Inc. (CHUY - Free Report) currently has a Zacks Rank #1. CHUY delivered a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have risen 45.1% in the past six months.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the year-ago period’s reported levels.
The Kroger Co. (KR - Free Report) currently sports a Zacks Rank #1. KR delivered a trailing four-quarter earnings surprise of 9.8%, on average. The stock has gained 6.2% in the past six months.
The Zacks Consensus Estimate for KR’s fiscal 2024 sales and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago period’s reported levels.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Chipotle (CMG) Banks on Digital Initiatives Amid Inflation
Chipotle Mexican Grill, Inc. (CMG - Free Report) is benefiting from a robust digital program, the inclusion of Chipotlane and strategic marketing initiatives. Shares of CMG have gained 11.9% over the past three months compared with the Zacks Retail - Restaurants industry’s growth of 4.3%.
Earnings estimates for 2023 have moved north to $41.39 per share from $41.38 over the past 30 days, depicting analysts' optimism over the company’s growth prospects.
However, CMG’s growth trend is restricted by supply chain risks and increased costs, inflation and reduced traffic.
Image Source: Zacks Investment Research
Let us discuss the factors broadly.
Growth Drivers
Chipotle is focusing on expanding its digital program to drive growth. Chipotle has redesigned and simplified its online ordering site, enabled online payment for catering and online meal customizations and collaborated with several well-known third-party providers for delivery. Also, there has been a significant increase in digital orders and guest satisfaction since the rollout of its “Smarter Pickup Times” technology. During the third quarter of 2022, the company initiated the testing of advanced location-based technology to enhance the Chipotle app functionality. During the second quarter of 2022, the company initiated investments in Hyphen, which is a digital food service platform. Digital sales contributed 39% to sales in 2022.
The addition of Chipotlane enhanced customer access and convenience, and bolstered new store restaurant sales, margins and returns for Chipotle. As of Dec 31, 2022, the company opened 236 new restaurants, of which 202 included Chipotlane. The company expects to open 255-285 restaurants (2023), with at least 80% of them including a Chipotlane.
Chipotle is working on strengthening its brand and recovering sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, enhancement of guest experience, technology-driven convenience and more aggressive brand marketing. It is implementing practices like minimal food waste disposal, recycling and compost programs for food packages, using reusable lids to replace plastic wraps and participating in the Harvest Program to donate leftover food to local communities. During the second quarter of 2022, the company rolled out an updated training program — Project Square One. This includes training around throughput, digital execution, food quality and hospitality to deliver an exceptional customer experience.
Headwinds
Chipotle has been facing significant supply chain challenges and inflation across most commodities and categories. As of 2022-end, the food, beverage and packaging costs increased 3% to $638.9 million compared with $620.2 million in 2021-end. The increase was due to inflation across the menu, primarily due to higher costs for avocados, packaging, dairy, beef and chicken. Labor costs increased 8.1% from the past year to $558.9 million. For 2023, our projection for labor costs indicates an increase of 13.7% year over year.
Chipotle operates in the retail restaurant space that is highly dependent on consumer discretionary spending. Consumers’ propensity to spend largely depends on the overall macroeconomic scenario. The restaurant industry is facing declining traffic for quite some time now. A rapid increase in menu prices is the primary reason behind the traffic erosion. Thus, it can be said that CMG is highly vulnerable to the inconsistent nature of consumer discretionary spending.
Zacks Rank & Key Picks
CMG currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are some top-ranked stocks that investors may consider in the Zacks Retail-Wholesale sector.
Tecnoglass Inc. (TGLS - Free Report) sports a Zacks Rank #1 at present. TGLS delivered a trailing four-quarter earnings surprise of 21.5%, on average. Shares of the company have gained 97.2% in the past six months.
The Zacks Consensus Estimate for TGLS’s 2023 sales and EPS suggests growth of 13.4% and 15.4%, respectively, from the year-ago period’s reported levels.
Chuy's Holdings, Inc. (CHUY - Free Report) currently has a Zacks Rank #1. CHUY delivered a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have risen 45.1% in the past six months.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the year-ago period’s reported levels.
The Kroger Co. (KR - Free Report) currently sports a Zacks Rank #1. KR delivered a trailing four-quarter earnings surprise of 9.8%, on average. The stock has gained 6.2% in the past six months.
The Zacks Consensus Estimate for KR’s fiscal 2024 sales and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago period’s reported levels.