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Chipotle (CMG) Stock Up 48% in a Year: More Room to Run?
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Shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) have witnessed a bull run in the past year, gaining 47.5% compared with the industry’s 3.3% growth. The company is benefiting from its digital efforts, Chipotlane add-ons and marketing initiatives. Strength in digital sales, a rise in menu prices and new restaurant openings have been driving CMG. Also, a strong comparable restaurant sales growth bodes well.
The Zacks Rank #3 (Hold) stock has an impressive long-term earnings growth rate of 26%. In 2024, its earnings and revenues are likely to witness 18.9% and 13.1% improvement year over year, respectively. However, commodity and wage inflation remain a concern.
Growth Drivers
Chipotle is focusing on expanding its digital program to drive growth. It witnessed increased order-ahead transactions courtesy of enhanced guest access and convenience. This, along with Chipotlanes’ add-ons, drove the company’s performance.
Digital sales contributed 36.6% to sales during third-quarter 2023. CMG focuses on improving order accuracy and timing for its digital business.
In October 2023, Chipotle partnered with Hyphen, a foodservice platform, to test an automated digital makeline. The new system, created by Hyphen, utilizes intelligent automation to assemble bowls and salads. This innovative, collaborative robot (cobotic) technology is being tested at the Chipotle Cultivate Center in Irvine, CA. About 65% of CMG's digital orders are bowls or salads, making the cobotic digital makeline crucial.
It allows employees to focus on the front makeline, providing exceptional service and increasing digital order capacity during peak periods. This innovation also improves order accuracy, enhancing the guest experience.
CMG is also focusing on opening Chipotlane. During the third quarter of 2023, it opened 62 new restaurants, with 54 locations including a Chipotlane. The addition of Chipotlane enhanced customer access and convenience, and bolstered new store restaurant sales, margins and returns.
The company continues to expand its digital drive with Chipotlane. Management expects to open 255-285 restaurants (including 10-15 relocations) in 2023, with at least 80% of them including a Chipotlane.
Impressive comps performance continues to drive growth. During the third quarter, comparable restaurant sales increased 5% year over year, following growth of 7.4% (in second-quarter 2023), 10.9% (in first-quarter 2023), 5.6% (in fourth-quarter 2022), 7.6% (in third-quarter 2022), 10.1% (in second-quarter 2022) and 9% (in first-quarter 2022). The rise is primarily attributable to higher transactions and increased average checks. Also, consistent strength in digital sales and solid recovery of in-restaurant sales contributed to the company’s results.
For the fourth quarter of 2023, management anticipates comps growth in the mid-to-high single-digit range, driven by its transaction growth and strong comps growth trends. For full-year 2023, it expects comps growth in the mid-to-high single-digit range.
Concerns
Chipotle has been facing significant supply-chain challenges and inflation across most commodities and categories. During third-quarter 2023, food, beverage and packaging costs totaled $734.2 million compared with $662.5 million in the prior-year quarter. The upside was primarily caused by inflation across food costs, mainly beef and queso. The labor costs jumped 10.6% to $616.3 million from the year-ago levels due to restaurant wage inflation.
For fourth-quarter 2023, the company suggests cost of sales to be around 30% (owing to the mix shift from Chicken al Pastor to Carne Asada, and a rise in cheese and avocado prices). At the same time, labor costs are expected to be around 25% due to the ongoing labor inflation.
Key Picks
Below, we have presented some better-ranked stocks from the Zacks Retail-Wholesale sector.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests a rise of 15.6% and 17.2%, respectively, from the year-ago levels.
Brinker International, Inc. (EAT - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have rallied 14.8% in the past year.
The Zacks Consensus Estimate for EAT’s fiscal 2024 sales and EPS indicates an improvement of 5.1% and 26.2%, respectively, from the prior-year levels.
FAT Brands Inc. (FAT - Free Report) currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 36.6%, on average. The stock has gained 0.3% in the past year.
The Zacks Consensus Estimate for FAT’s 2024 sales and EPS suggests an increase of 35.6% and 27.4%, respectively, from the year-earlier levels.
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Chipotle (CMG) Stock Up 48% in a Year: More Room to Run?
Shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) have witnessed a bull run in the past year, gaining 47.5% compared with the industry’s 3.3% growth. The company is benefiting from its digital efforts, Chipotlane add-ons and marketing initiatives. Strength in digital sales, a rise in menu prices and new restaurant openings have been driving CMG. Also, a strong comparable restaurant sales growth bodes well.
The Zacks Rank #3 (Hold) stock has an impressive long-term earnings growth rate of 26%. In 2024, its earnings and revenues are likely to witness 18.9% and 13.1% improvement year over year, respectively. However, commodity and wage inflation remain a concern.
Growth Drivers
Chipotle is focusing on expanding its digital program to drive growth. It witnessed increased order-ahead transactions courtesy of enhanced guest access and convenience. This, along with Chipotlanes’ add-ons, drove the company’s performance.
Digital sales contributed 36.6% to sales during third-quarter 2023. CMG focuses on improving order accuracy and timing for its digital business.
In October 2023, Chipotle partnered with Hyphen, a foodservice platform, to test an automated digital makeline. The new system, created by Hyphen, utilizes intelligent automation to assemble bowls and salads. This innovative, collaborative robot (cobotic) technology is being tested at the Chipotle Cultivate Center in Irvine, CA. About 65% of CMG's digital orders are bowls or salads, making the cobotic digital makeline crucial.
It allows employees to focus on the front makeline, providing exceptional service and increasing digital order capacity during peak periods. This innovation also improves order accuracy, enhancing the guest experience.
CMG is also focusing on opening Chipotlane. During the third quarter of 2023, it opened 62 new restaurants, with 54 locations including a Chipotlane. The addition of Chipotlane enhanced customer access and convenience, and bolstered new store restaurant sales, margins and returns.
The company continues to expand its digital drive with Chipotlane. Management expects to open 255-285 restaurants (including 10-15 relocations) in 2023, with at least 80% of them including a Chipotlane.
Impressive comps performance continues to drive growth. During the third quarter, comparable restaurant sales increased 5% year over year, following growth of 7.4% (in second-quarter 2023), 10.9% (in first-quarter 2023), 5.6% (in fourth-quarter 2022), 7.6% (in third-quarter 2022), 10.1% (in second-quarter 2022) and 9% (in first-quarter 2022). The rise is primarily attributable to higher transactions and increased average checks. Also, consistent strength in digital sales and solid recovery of in-restaurant sales contributed to the company’s results.
For the fourth quarter of 2023, management anticipates comps growth in the mid-to-high single-digit range, driven by its transaction growth and strong comps growth trends. For full-year 2023, it expects comps growth in the mid-to-high single-digit range.
Concerns
Chipotle has been facing significant supply-chain challenges and inflation across most commodities and categories. During third-quarter 2023, food, beverage and packaging costs totaled $734.2 million compared with $662.5 million in the prior-year quarter. The upside was primarily caused by inflation across food costs, mainly beef and queso. The labor costs jumped 10.6% to $616.3 million from the year-ago levels due to restaurant wage inflation.
For fourth-quarter 2023, the company suggests cost of sales to be around 30% (owing to the mix shift from Chicken al Pastor to Carne Asada, and a rise in cheese and avocado prices). At the same time, labor costs are expected to be around 25% due to the ongoing labor inflation.
Key Picks
Below, we have presented some better-ranked stocks from the Zacks Retail-Wholesale sector.
Wingstop Inc. (WING - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has risen 62.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests a rise of 15.6% and 17.2%, respectively, from the year-ago levels.
Brinker International, Inc. (EAT - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have rallied 14.8% in the past year.
The Zacks Consensus Estimate for EAT’s fiscal 2024 sales and EPS indicates an improvement of 5.1% and 26.2%, respectively, from the prior-year levels.
FAT Brands Inc. (FAT - Free Report) currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 36.6%, on average. The stock has gained 0.3% in the past year.
The Zacks Consensus Estimate for FAT’s 2024 sales and EPS suggests an increase of 35.6% and 27.4%, respectively, from the year-earlier levels.