Will Chipotle’s Record Digital Sales Be the New Normal?

When Chipotle Mexican Grill Inc. (NYSE: CMG | CMG Price Prediction) released first-quarter financial results after markets closed Tuesday, the company posted $3.08 in adjusted earnings per share (EPS) on $1.4 billion in revenue. That compared with consensus estimates of $2.90 in EPS and revenue of $1.42 billion and with earnings of $3.40 per share and $1.31 billion in revenue posted in the same period last year.

During the most recent quarter, comparable restaurant sales increased by 3.3%. Comparable restaurant sales improved due to a 4.9% increase in average check, which includes a 2.0% benefit from menu price increases that were implemented during 2019, partially offset by a 1.4% decrease in comparable restaurant transactions.

At the same time, digital sales grew 80.8% in the quarter and accounted for 26.3% of sales.

Restaurant-level operating margin was 17.6%, a decrease from 21.0% in the first quarter of 2019. The move was driven primarily by wage inflation at the crew level, increased marketing and promotional spend, higher costs of several ingredients, and delivery expense associated with increased delivery sales, partially offset by leverage from the comparable restaurant sales increase.

[nativounit]

Food, beverage, and packaging costs accounted for 32.8% of revenue, an increase of 60 basis points compared to the first quarter of 2019.

The company withdrew its 2020 guidance citing the uncertainty related to COVID-19. Chipotle has a strong financial position with $909.2 million in cash, restricted cash, and short-term investments as of March 31, 2020, and no debt.

CEO Brian Niccol commented:

I am grateful to all our employees for their commitment and efforts in providing guests access to our safe, delicious, high-quality food made from real ingredients during this unprecedented time. Investing in digital over the last several years has allowed us to quickly pivot our business with Q1 digital sales reaching our highest ever quarterly level of $372 million. Our strong brand, business model and balance sheet give us the confidence to not only weather this downturn but continue to judiciously invest in key areas so that when we come out the other side, we will emerge even stronger.

Shares of Chipotle closed Tuesday at $786.69, with a 52-week range of $415.00 to $940.28. The stock has a consensus analyst price target of $822.38. Following the announcement, the stock was initially up 3% at $805.00 in the after-hours session.

[wallst_email_signup]