Chipotle Stock Rose Due to Impressive Q2 Performance


Jul. 24 2019, Published 9:11 a.m. ET

Chipotle Mexican Grill (CMG) reported its second-quarter earnings after the market closed on Tuesday. For the quarter ending on June 30, the company reported an adjusted EPS of $3.99, which beat analysts’ expectation of $3.76 by 6.2%. Chipotle also beat analysts’ sales estimates. Driven by digital sales growth, the company reported revenues of $1.43 billion, which beat analysts’ expectation of $1.41 billion. The company’s SSSG (same-store sales growth) was 10.0% compared to analysts’ estimate of 8.3%. We’ll discuss how Chipotle stock reacted to the second-quarter earnings.

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Chipotle stock

Following the impressive second-quarter SSSG, Chipotle’s management raised its SSSG guidance for 2019 to the high single-digits. Earlier, the company’s management set its SSSG guidance to be in the mid to high single-digits. Chipotle’s impressive second-quarter performance and higher SSSG guidance led to an increase in its stock price. Chipotle stock rose 3.4% in the after-market hours on Tuesday.


Chipotle’s revenue growth

Chipotle’s revenues have risen 13.2% YoY (year-over-year) from $1.27 billion. The net addition of new restaurants in the last four quarters and 10% growth in same-store sales drove the company’s revenues. Chipotle opened 20 new restaurants and closed one during the quarter. The company increased its restaurant count to 2,523. Compared to the second quarter of 2018, Chipotle operated 96 more restaurants at the end of the second quarter.

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SSSG rose

In the above graph, you can see that Chipotle reported a higher SSSG for the sixth consecutive quarter. The company’s SSSG of 10% in the second quarter includes a 0.4% reduction from deferred revenues due to its reward program. Increased traffic contributed 7.0%, while the growth in check size contributed 3.5%. The rise of 2% in average menu prices and a contribution of 1.5% from the mix drove the company’s check size.

During the quarter, Chipotle’s digital sales grew 99.0% YoY to form 18.2% of its total sales. Implementing the order ahead, delivery, and catering features increased customer convenience. Now, the company offers the delivery service in 95% of its restaurants. Chipotle introduced mobile order pickup shelves in all of its relevant restaurants. Chipotle implemented digital make lines, which only cater to digital orders, in approximately 2,000 restaurants. The initiatives removed friction and improved customer experiences, which drove the company’s sales.

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Chipotle launched its rewards program in March. By the end of the quarter, the company had approximately 5 million members registered on its reward program—compared to 3 million at the end of the first quarter. Along with these initiatives, menu innovations and revamping the marketing communication helped increase Chipotle’s same-store sales.

Expanded EBIT margin

Chipotle reported an EBIT margin of 10.1% for the second quarter—an improvement from 8.7% in the second quarter of 2018. Lower labor, occupancy, and other operating costs improved Chipotle’s EBIT margin. Lower depreciation and amortization and pre-opening expenses contributed to the expansion in the company’s EBIT margin. However, higher food and beverage costs and increased general and administrative expenses offset some of the improvement in the EBIT margin.

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The sales leverage from positive SSSG more than offset wage inflation, which lowered Chipotle’s labor expenses 1.3% to 25.7%. The other operating costs fell 0.3% to 13.5%. The sales leverage more than offset increased marketing and promotional expenses, which lowered the company’s other operating costs. The investments in the “Behind the Foil” campaign and various delivery promotions increased Chipotle’s marketing and promotional expenses.

Chipotle’s food and beverage expenses rose 1.1% to 33.7% due to higher avocado prices. However, higher menu prices offset some of the increase in food and beverage costs.

Chipotle’s EPS growth

For the second quarter, Chipotle reported a diluted EPS of $3.22. However, removing unusual items, the company’s adjusted EPS was $3.99, which beat analysts’ estimate of $3.76. In the above graph, you can see that Chipotle beat analysts’ estimates in all four of the previous quarters.

Chipotle’s EPS rose 39.0% YoY from $2.87 in the second quarter of 2018. The revenue growth, expanded EBIT margin, and lower effective tax rate drove the company’s EPS during the quarter. For the second quarter, the company’s effective tax rate was 26.6% compared to 28.5% in the second quarter of 2018.

Chipotle has repurchased shares worth $58 million during the second quarter. Despite these repurchases, the weighted average number of shares rose. There are more options due to the company’s higher stock price.


Following an impressive second-quarter performance, Chipotle’s management raised its SSSG guidance for 2019. Chipotle’s mangement expects the company’s same-store sales to rise in the high single-digits. With unit growth expected to improve in the second half of the year, management maintained the unit growth guidance at 140–150 units this year. The company expects its effective tax rate for 2019 to be 26%–29%. During the second quarter, Chipotle’s board authorized share repurchases worth $100 million in addition to $46.6 million available as of June 30 from the previous authorization.


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