Chipotle Mexican Grill (CMG) delivered strong Q2 earnings, surpassing analyst expectations across several key metrics. The company reported adjusted EPS of $0.34, better than the consensus of $0.32, and revenues of $2.97 billion, topping the estimated $2.94 billion. Comparable sales grew by 11.1% compared to the previous year, exceeding the expected 9.23%. This impressive growth was driven by an 8.7% increase in transactions and a 2.4% rise in the average check.
CMG shares have been stuck in a downward spiral. Signs of consumer spending weakness have weighed on the restaurant business and lowered investor expectations for the restaurant names. CMG slipped to test its 200-day moving average ($52) ahead of this report. Shares jumped to $59 in after hours but have given up some of those gains, which has been a troubling sign from companies (i.e.- STX. IBM) in recent sessions.
Operating margin also saw a notable improvement, rising to 19.7% from 17.2% the previous year, beating the expected 19.2%. The restaurant-level operating margin increased to 28.9%, surpassing the estimated 28.4%. Despite facing challenges like avocado inflation and increased spending on fryer oil, Chipotle managed to maintain strong profitability, highlighting effective cost management and operational efficiency.
Looking ahead, Chipotle provided a positive outlook, maintaining its full-year guidance for mid to high-single-digit growth in comparable restaurant sales. The company plans to open between 285 and 315 new restaurants this year, with over 80% featuring a Chipotlane, which has proven effective in enhancing guest access and convenience, thereby boosting new restaurant sales, margins, and returns.
In terms of pricing and traffic trends, Chipotle noted that they have no plans for further price increases this year and expect avocado prices to ease into next year. The company is focusing on improving throughput and addressing negative portion scores to ensure generous servings, which have already received positive feedback. Additionally, improvements in crew member turnover and the success of limited-time offerings like Chicken al Pastor have driven higher average tickets and incremental sales.
During the quarter, Chipotle opened 52 new company-operated restaurants, with 46 featuring a Chipotlane. These formats continue to perform well, contributing to the company's overall growth. Digital sales accounted for 35.3% of total food and beverage revenue, underscoring the importance of online ordering in Chipotle's business model.
Despite the positive results, Chipotle did warn that margins might be under pressure for the next few quarters due to seasonal factors. However, the company remains confident in its ability to navigate these challenges and maintain strong operational performance.
In summary, Chipotle's Q2 earnings report highlights significant growth in revenue and profitability, driven by effective operational strategies and strong customer loyalty. The company's positive outlook, combined with strategic investments in new restaurant openings and digital sales, positions it well for continued success in the coming quarters.