CMG Preview: Moving on from Brian Niccol
2min read Chipotle Mexican Grill (CMG) is set to report Q3 earnings today after the close, with consensus estimates calling for EPS of $0.25 on revenue of $2.82 billion, representing expected year-over-year revenue growth of 14%. Investors are particularly focused on the earnings release following the unexpected departure of CEO Brian Niccol to Starbucks in August, a move that has left interim CEO Scott Boatwright at the helm. The conference call will follow the earnings release at 4:30 pm ET, where updates on leadership and potential strategy shifts may be discussed.
Chipotle has stopped providing quarterly revenue and EPS guidance, instead sticking to an annual comp guidance target of mid-to-high single digits for FY24. The company also anticipates opening 285-315 new restaurants this year, with over 80% including a Chipotlane drive-thru, supporting its strategic emphasis on convenience. Last quarter, Chipotle's Q2 revenue growth of 18.2% met expectations, but EPS only modestly exceeded estimates, underscoring a slightly more conservative earnings beat relative to past quarters due to its recent 50-for-1 stock split.
In terms of same-store sales (SSS), Wedbush has raised its Q3 growth estimate to 6.5%, slightly above its previous 6.0% forecast, reflecting strong momentum driven by recent initiatives like the reintroduction of its smoked brisket and investments in consistent portion sizes. Chipotle's focus on menu innovation, such as the successful launch of its Honey Chicken test in select markets, has been well-received and could contribute positively to its SSS. Investors will be keen to hear more about throughput initiatives, which are expected to lift transaction counts by mid-single digits and drive incremental revenue.
The stock faced pressure over the summer, dropping 27% from June to July before partially recovering, driven in part by concerns about the impact of Niccol's exit on the brand’s leadership and strategic continuity. Despite these concerns, Chipotle has managed to rebound, trading above $60 as of the latest close. Investors remain cautious, as the broader restaurant industry grapples with challenging consumer spending trends and rising food costs, with Chipotle not immune to the pressures impacting consumer discretionary spending.
Analysts are optimistic about Chipotle’s international expansion, with the company set to open its first location in Dubai in partnership with Alshaya Group. This venture could signal a faster growth trajectory, especially as Chipotle explores franchising options—a rare move for the typically corporate-owned chain. In the U.S., its loyalty program and increasing investment in digital and tech initiatives are expected to support long-term growth, with SSS gains projected to continue, especially as digital ordering and AI-driven service improvements gain traction.
In Q2, Chipotle reported an 18.2% year-over-year increase in revenue to $2.97 billion, largely meeting expectations, while EPS slightly exceeded estimates at $0.34 per share. Comparable restaurant sales grew by a notable 11.1%, marking Chipotle's strongest comp growth since Q1 2023, although the company had signaled that Q2 would likely be its peak for the year. The increase in sales was driven by the popularity of its limited-time Chicken Al Pastor, which contributed to both higher transaction volume and increased spending, as well as ongoing improvements in restaurant throughput.
Despite robust comps and solid customer demand, Chipotle shares faced pressure following the results, partly due to a post-stock-split pullback and recent social media concerns over portion sizes. Chipotle addressed these concerns by reiterating its commitment to generous portions, emphasizing that there was no corporate directive to reduce portions, and that training adjustments were already underway. Additionally, Chipotle reaffirmed its FY24 guidance for comp growth in the mid to high-single digits and announced the upcoming return of its popular Smoked Brisket offering for the fall.
Operationally, Chipotle saw improvements in crew turnover rates and continued success with its Chipotlane drive-thru format, which was included in 46 of the 52 new company-operated restaurants opened during the quarter. The brand's digital sales remained strong, accounting for 35.3% of total revenue. However, Chipotle noted margin pressures expected in the coming quarters due to seasonal factors and inflationary impacts on key ingredients like avocados and beef. Looking ahead, the company remains on track for 285-315 new restaurant openings in North America this year, with a focus on Chipotlane installations to enhance accessibility and drive long-term growth.
Looking ahead, investor focus will also be on commentary surrounding recent menu launches and customer engagement through limited-time offers, as well as management’s approach to navigating inflationary pressures in its largest markets, like California. Chipotle’s ability to maintain or improve its market share despite these headwinds, coupled with effective execution on new products, will be critical to its performance into 2024.
