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Chipotle (CMG) Banks on Chipotlane Add-ons, Hurt by Costs
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Chipotle Mexican Grill, Inc. (CMG - Free Report) is poised to benefit from the addition of Chipotlanes, digital initiatives and menu innovation. Also, the increased focus on human capital technology bodes well. However, inflationary pressures and a decline in traffic from pre-pandemic levels are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Key Catalysts
Chipotle continues to focus on the addition of Chipotlanes to drive growth. During third-quarter 2022, it opened 43 new restaurants, including 38 Chipotlanes. The addition of Chipotlanes enhanced customer access and convenience and bolstered new store restaurant sales, margins and returns. It continues to expand its digital drive with Chipotlanes.
Backed by impressive unit economics and the success of small-town locations, the company anticipates opening between 255 and 285 restaurants in 2023, with more than 80% of the restaurants having Chipotlanes in them.
Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and increasingly efficient for restaurants. Notably, the company has redesigned and simplified the online ordering site, enabled online payment for catering and collaborated with several well-known third-party providers for delivery.
There has also been a significant increase in digital orders and guest satisfaction since the rollout of its “Smarter Pickup Times” technology. The company witnessed a rise in order-ahead transactions, courtesy of enhanced guest access and convenience. Digital sales contributed 37% to sales during the third quarter of 2022.
Meanwhile, the company has been focusing on human capital technology to enhance the team member experience in its restaurants, paving the path for a more efficient, consistent and compliant environment. During first-quarter 2022, the company initiated the testing of an autonomous kitchen assistant – Chippy – that integrates culinary traditions with artificial intelligence to make tortilla chips. The initiative involves robotics collaboration, thereby allowing the company to focus on other culinary tasks in the restaurant without sacrificing the quality and deliciousness of the item.
The company plans to implement the initiative in a Southern California restaurant and leverage it with the stage-gate process before deciding its future course of implementation.
The company is also working on strengthening its brand and recovering sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, and enhancement of guest experience by retraining workers, technology-driven convenience, along with a more aggressive brand marketing. Also, it has been working on a new pipeline for its menu offerings.
Chipotle also initiated the testing of Chicken Al Pastor in Denver and Indianapolis. With a focus on go-to orders, the company intends to roll out the product in 2023, subject to its acceptance in the stage-gate process.
Image Source: Zacks Investment Research
In the past six months, shares of the company have gained 15.6% compared with the industry’s 14.8% growth.
Concerns
Chipotle has been continuously shouldering increased expenses, which have been detrimental to its margins. Commodity and wage inflation and supply chain challenges are adding to the downside. During the third quarter of 2022, the company had been witnessing a rise in expenses related to dairy, packaging, tortillas and avocados. Total operating expenses during the quarter moved up 10% year over year.
Going forward, the company anticipates inflationary pressures to persist for some time. In the fourth quarter, the company expects elevated costs concerning beef, chicken, dairy and tortilla.
Although most dining services are open, traffic is still low compared with the pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
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Chipotle (CMG) Banks on Chipotlane Add-ons, Hurt by Costs
Chipotle Mexican Grill, Inc. (CMG - Free Report) is poised to benefit from the addition of Chipotlanes, digital initiatives and menu innovation. Also, the increased focus on human capital technology bodes well. However, inflationary pressures and a decline in traffic from pre-pandemic levels are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Key Catalysts
Chipotle continues to focus on the addition of Chipotlanes to drive growth. During third-quarter 2022, it opened 43 new restaurants, including 38 Chipotlanes. The addition of Chipotlanes enhanced customer access and convenience and bolstered new store restaurant sales, margins and returns. It continues to expand its digital drive with Chipotlanes.
Backed by impressive unit economics and the success of small-town locations, the company anticipates opening between 255 and 285 restaurants in 2023, with more than 80% of the restaurants having Chipotlanes in them.
Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and increasingly efficient for restaurants. Notably, the company has redesigned and simplified the online ordering site, enabled online payment for catering and collaborated with several well-known third-party providers for delivery.
There has also been a significant increase in digital orders and guest satisfaction since the rollout of its “Smarter Pickup Times” technology. The company witnessed a rise in order-ahead transactions, courtesy of enhanced guest access and convenience. Digital sales contributed 37% to sales during the third quarter of 2022.
Meanwhile, the company has been focusing on human capital technology to enhance the team member experience in its restaurants, paving the path for a more efficient, consistent and compliant environment. During first-quarter 2022, the company initiated the testing of an autonomous kitchen assistant – Chippy – that integrates culinary traditions with artificial intelligence to make tortilla chips. The initiative involves robotics collaboration, thereby allowing the company to focus on other culinary tasks in the restaurant without sacrificing the quality and deliciousness of the item.
The company plans to implement the initiative in a Southern California restaurant and leverage it with the stage-gate process before deciding its future course of implementation.
The company is also working on strengthening its brand and recovering sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, and enhancement of guest experience by retraining workers, technology-driven convenience, along with a more aggressive brand marketing. Also, it has been working on a new pipeline for its menu offerings.
Chipotle also initiated the testing of Chicken Al Pastor in Denver and Indianapolis. With a focus on go-to orders, the company intends to roll out the product in 2023, subject to its acceptance in the stage-gate process.
Image Source: Zacks Investment Research
In the past six months, shares of the company have gained 15.6% compared with the industry’s 14.8% growth.
Concerns
Chipotle has been continuously shouldering increased expenses, which have been detrimental to its margins. Commodity and wage inflation and supply chain challenges are adding to the downside. During the third quarter of 2022, the company had been witnessing a rise in expenses related to dairy, packaging, tortillas and avocados. Total operating expenses during the quarter moved up 10% year over year.
Going forward, the company anticipates inflationary pressures to persist for some time. In the fourth quarter, the company expects elevated costs concerning beef, chicken, dairy and tortilla.
Although most dining services are open, traffic is still low compared with the pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Chipotle currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Wingstop Inc. (WING - Free Report) , Tecnoglass Inc. (TGLS - Free Report) and Domino's Pizza, Inc. (DPZ - Free Report) .
Wingstop currently sports a Zacks Rank #1. WING has a long-term earnings growth rate of 12%. Shares of WING have gained 0.6% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and earnings per share (EPS) suggests growth of 18.4% and 16.3%, respectively, from the year-ago period’s reported levels.
Tecnoglass currently sports a Zacks Rank #1. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average. Shares of the company have gained 50.9% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels.
Domino's currently carries a Zacks Rank #2 (Buy). DPZ has a long-term earnings growth rate of 12.6%. Shares of DPZ have declined 27.7% in the past year.
The Zacks Consensus Estimate for Domino's 2023 sales and EPS suggests growth of 3.8% and 17.2%, respectively, from the year-ago period’s reported levels.