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Here's Why You Should Retain Chipotle (CMG) in Your Portfolio
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Chipotle Mexican Grill, Inc. (CMG - Free Report) is likely to benefit from strong comp performance Chipotlane add-ons and digital initiatives. Also, the emphasis on menu innovation bodes well. However, inflationary pressures are a concern.
Let’s delve deeper.
Key Catalysts
Chipotle benefits from strong comps performance. During the fourth quarter of 2023, comparable restaurant sales increased 8.4% year over year. The upside can be attributed to higher transactions, increased average checks and new restaurant openings. This and consistent strength in digital sales and solid recovery of in-restaurant sales contributed to the company’s performance. In 2023, the comparable restaurant sales increased 7.9% year over year. For 2024, Chipotle anticipates comps growth in the mid-single-digit range, driven by its transaction growth and strong comps growth trends.
The company continues to focus on the addition of Chipotlanes to drive growth. During the fourth quarter, Chipotle opened 121 new restaurants, with 110 locations, including a Chipotlane. The addition of Chipotlane enhanced customer access and convenience and bolstered new store restaurant sales, margins and returns. It continues to expand its digital drive with Chipotlane. The company expects to open 285-315 restaurants (assuming developer, permit, inspection, and utility delays do not impact) in 2024, mostly concentrated in North America, with more than 80% of them including a Chipotlane.
Chipotle is prioritizing the expansion of its digital initiatives to stimulate growth. The company has initiated improvements within app functionality, encompassing features like order readiness messaging, wrong location detection, reminders to scan for points during checkout and access to prior order history. The enhancements have effectively mitigated friction points and elevated the overall guest experience. Moreover, the introduction of Freepotle for reward members yielded positive results.
The enhancement in accessibility and convenience, coupled with the rise of Chipotlanes, boosted digital sales contributions to 36.1% in the fourth quarter and 37.4% for the entirety of 2023. The company intends to focus on leveraging customer data and insights to craft targeted marketing campaigns and enhance the digital experience to boost customer frequency and spending over time.
Chipotle is consistently focusing on menu innovation to drive growth. The successful return of the popular Carne Asada as a limited-time offering surpassed expectations, highlighting the synergy among the marketing, culinary, supply chain and restaurant teams. Notably, the emphasis on enhanced flavors and seamless execution bode well. Going forward, the company intends to focus on limited-time offerings and employ creative strategies (highlighting the core menu) to fuel growth.
Image Source: Zacks Investment Research
In the past year, the company’s shares have gained 71.1% compared with the industry’s 9.5% growth.
Concerns
Chipotle has been facing inflation across most commodities and categories.
During 2023, food, beverage and packaging costs were $2.91 billion compared with $2.6 billion reported in 2022. The upside was primarily driven by inflation across food costs, mainly beef, tortillas and queso. The labor costs increased 10.9% to $2.44 billion from the year-ago levels due to restaurant wage inflation. The company anticipates the inflationary pressures to persist for some time.
For first-quarter 2024, the company anticipates the cost of sales to be in the low 29% range owing to higher costs across several line items, most notably avocados and tortillas. For 2024, the cost of sales is expected to be in the low to mid-single-digit range. At the same time, labor costs are expected to be in the low 25% range due to the ongoing wage inflation.
Zacks Rank & Key Picks
Chipotle currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are:
The Zacks Consensus Estimate for EAT’s 2024 sales and earnings per share (EPS) indicates 4.9% and 30.4% growth, respectively, from the year-ago period’s levels.
Texas Roadhouse, Inc. (TXRH - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has gained 47.8% in the past year.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests rises of 14.1% and 25.8%, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 92.6%, on average. Shares of SHAK have increased 83.7% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS indicates 14.6% and 91.9% growth, respectively, from the year-ago period’s levels.
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Here's Why You Should Retain Chipotle (CMG) in Your Portfolio
Chipotle Mexican Grill, Inc. (CMG - Free Report) is likely to benefit from strong comp performance Chipotlane add-ons and digital initiatives. Also, the emphasis on menu innovation bodes well. However, inflationary pressures are a concern.
Let’s delve deeper.
Key Catalysts
Chipotle benefits from strong comps performance. During the fourth quarter of 2023, comparable restaurant sales increased 8.4% year over year. The upside can be attributed to higher transactions, increased average checks and new restaurant openings. This and consistent strength in digital sales and solid recovery of in-restaurant sales contributed to the company’s performance. In 2023, the comparable restaurant sales increased 7.9% year over year. For 2024, Chipotle anticipates comps growth in the mid-single-digit range, driven by its transaction growth and strong comps growth trends.
The company continues to focus on the addition of Chipotlanes to drive growth. During the fourth quarter, Chipotle opened 121 new restaurants, with 110 locations, including a Chipotlane. The addition of Chipotlane enhanced customer access and convenience and bolstered new store restaurant sales, margins and returns. It continues to expand its digital drive with Chipotlane. The company expects to open 285-315 restaurants (assuming developer, permit, inspection, and utility delays do not impact) in 2024, mostly concentrated in North America, with more than 80% of them including a Chipotlane.
Chipotle is prioritizing the expansion of its digital initiatives to stimulate growth. The company has initiated improvements within app functionality, encompassing features like order readiness messaging, wrong location detection, reminders to scan for points during checkout and access to prior order history. The enhancements have effectively mitigated friction points and elevated the overall guest experience. Moreover, the introduction of Freepotle for reward members yielded positive results.
The enhancement in accessibility and convenience, coupled with the rise of Chipotlanes, boosted digital sales contributions to 36.1% in the fourth quarter and 37.4% for the entirety of 2023. The company intends to focus on leveraging customer data and insights to craft targeted marketing campaigns and enhance the digital experience to boost customer frequency and spending over time.
Chipotle is consistently focusing on menu innovation to drive growth. The successful return of the popular Carne Asada as a limited-time offering surpassed expectations, highlighting the synergy among the marketing, culinary, supply chain and restaurant teams. Notably, the emphasis on enhanced flavors and seamless execution bode well. Going forward, the company intends to focus on limited-time offerings and employ creative strategies (highlighting the core menu) to fuel growth.
Image Source: Zacks Investment Research
In the past year, the company’s shares have gained 71.1% compared with the industry’s 9.5% growth.
Concerns
Chipotle has been facing inflation across most commodities and categories.
During 2023, food, beverage and packaging costs were $2.91 billion compared with $2.6 billion reported in 2022. The upside was primarily driven by inflation across food costs, mainly beef, tortillas and queso. The labor costs increased 10.9% to $2.44 billion from the year-ago levels due to restaurant wage inflation. The company anticipates the inflationary pressures to persist for some time.
For first-quarter 2024, the company anticipates the cost of sales to be in the low 29% range owing to higher costs across several line items, most notably avocados and tortillas. For 2024, the cost of sales is expected to be in the low to mid-single-digit range. At the same time, labor costs are expected to be in the low 25% range due to the ongoing wage inflation.
Zacks Rank & Key Picks
Chipotle currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are:
Brinker International, Inc. (ARCO - Free Report) carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 212.7% on average. Shares of EAT have surged 38.3% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for EAT’s 2024 sales and earnings per share (EPS) indicates 4.9% and 30.4% growth, respectively, from the year-ago period’s levels.
Texas Roadhouse, Inc. (TXRH - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has gained 47.8% in the past year.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests rises of 14.1% and 25.8%, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 92.6%, on average. Shares of SHAK have increased 83.7% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS indicates 14.6% and 91.9% growth, respectively, from the year-ago period’s levels.