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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) will likely benefit from Chipotlane add-ons, menu innovation and digital efforts. Also, the emphasis on unit expansion bodes well. However, inflationary pressures are a concern.
Let’s delve deeper.
Key Catalysts
Chipotle continues to focus on the addition of Chipotlanes to drive growth. In the third quarter of 2023, Chipotle unveiled 62 new restaurants, with 54 of them featuring a Chipotlane. The introduction of Chipotlanes not only improved customer accessibility and convenience but also strengthened sales, margins and returns for new restaurant locations. It is persistently expanding its digital initiatives using Chipotlanes. With plans to open 285-315 restaurants in 2024, the company aims for at least 80% of new establishments to include a Chipotlane, showcasing continued emphasis on expansion via this drive-thru format.
Leveraging strong unit economics and the successful performance of locations in smaller towns, the company foresees the potential to operate more than 7,000 restaurants in North America in the long term. Also, the company devised a strategy for Europe geared toward fostering an economic landscape that promotes swift expansion. Simultaneously, prioritizing brand recognition remains pivotal. In parallel, the collaboration with Alshaya Group in the Middle East encompasses multiple aspects — development, culinary expertise, supply chain management and food safety — aimed at restaurant openings in Kuwait and Dubai in 2024.
Chipotle is consistently focusing on menu innovation to drive growth. The introduction of new items and solid marketing activities that combine brand-building efforts and transaction-driving promotions and advertising are likely to lead to a steady inflow of new customers. The company is dedicated to exploring novel menu concepts and revisiting previously successful innovations. They aim to reintroduce menu items that have previously captured customers' interest. CMG disclosed plans for new menu additions in development, set for launch over the coming 18-24 months.
Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and increasingly efficient for restaurants. One such innovation is the automated digital make line, which is currently undergoing testing at the Cultivate Center to refine its functionalities and performance.
In collaboration with Hyphen, Chipotle is exploring the Hyphen make line, which is engineered to integrate into the existing digital make line structure seamlessly. This system automates bowl preparation while allowing the team to assemble various menu items on top, offering advantages such as increased capacity, improved speed and precision and streamlined labor allocation between different make lines. The company highlighted progress on evaluating Autocado, a technology streamlining avocado cutting and preparation. Although further adjustments are necessary for Hyphen and Autocado (before restaurant testing), the team's advancements are promising.
Image Source: Zacks Investment Research
In the past three months, shares of the company have gained 21.9% compared with the industry’s 12.6% growth.
Concerns
Chipotle has been facing inflation across most commodities and categories. During third-quarter 2023, food, beverage and packaging costs totaled $734.2 million compared with $662.5 million in the prior-year quarter. The upside was primarily caused by inflation across food costs, mainly beef and queso. The labor costs jumped 10.6% to $616.3 million from the year-ago levels due to restaurant wage inflation.
For fourth-quarter 2023, the company suggests the cost of sales to be around 30% (owing to the mix shift from Chicken al Pastor to Carne Asada and a rise in cheese and avocado prices). Simultaneously, labor costs are projected to be around 25%, reflecting the persistent inflation in labor expenses.
Zacks Rank & Key Picks
Chipotle currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are:
Arcos Dorados Holdings Inc. (ARCO - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 28.3% on average. Shares of ARCO have surged 46.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Wingstop Inc. (WING - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has gained 77.2% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.8% and 18.2%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 14.4% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5.1% and 26.2% growth, respectively, from the year-ago period’s levels.
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Chipotle (CMG) Banks on Chipotlane Add-ons, Hurt by Costs
Chipotle Mexican Grill, Inc. (CMG - Free Report) will likely benefit from Chipotlane add-ons, menu innovation and digital efforts. Also, the emphasis on unit expansion bodes well. However, inflationary pressures are a concern.
Let’s delve deeper.
Key Catalysts
Chipotle continues to focus on the addition of Chipotlanes to drive growth. In the third quarter of 2023, Chipotle unveiled 62 new restaurants, with 54 of them featuring a Chipotlane. The introduction of Chipotlanes not only improved customer accessibility and convenience but also strengthened sales, margins and returns for new restaurant locations. It is persistently expanding its digital initiatives using Chipotlanes. With plans to open 285-315 restaurants in 2024, the company aims for at least 80% of new establishments to include a Chipotlane, showcasing continued emphasis on expansion via this drive-thru format.
Leveraging strong unit economics and the successful performance of locations in smaller towns, the company foresees the potential to operate more than 7,000 restaurants in North America in the long term. Also, the company devised a strategy for Europe geared toward fostering an economic landscape that promotes swift expansion. Simultaneously, prioritizing brand recognition remains pivotal. In parallel, the collaboration with Alshaya Group in the Middle East encompasses multiple aspects — development, culinary expertise, supply chain management and food safety — aimed at restaurant openings in Kuwait and Dubai in 2024.
Chipotle is consistently focusing on menu innovation to drive growth. The introduction of new items and solid marketing activities that combine brand-building efforts and transaction-driving promotions and advertising are likely to lead to a steady inflow of new customers. The company is dedicated to exploring novel menu concepts and revisiting previously successful innovations. They aim to reintroduce menu items that have previously captured customers' interest. CMG disclosed plans for new menu additions in development, set for launch over the coming 18-24 months.
Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and increasingly efficient for restaurants. One such innovation is the automated digital make line, which is currently undergoing testing at the Cultivate Center to refine its functionalities and performance.
In collaboration with Hyphen, Chipotle is exploring the Hyphen make line, which is engineered to integrate into the existing digital make line structure seamlessly. This system automates bowl preparation while allowing the team to assemble various menu items on top, offering advantages such as increased capacity, improved speed and precision and streamlined labor allocation between different make lines. The company highlighted progress on evaluating Autocado, a technology streamlining avocado cutting and preparation. Although further adjustments are necessary for Hyphen and Autocado (before restaurant testing), the team's advancements are promising.
Image Source: Zacks Investment Research
In the past three months, shares of the company have gained 21.9% compared with the industry’s 12.6% growth.
Concerns
Chipotle has been facing inflation across most commodities and categories. During third-quarter 2023, food, beverage and packaging costs totaled $734.2 million compared with $662.5 million in the prior-year quarter. The upside was primarily caused by inflation across food costs, mainly beef and queso. The labor costs jumped 10.6% to $616.3 million from the year-ago levels due to restaurant wage inflation.
For fourth-quarter 2023, the company suggests the cost of sales to be around 30% (owing to the mix shift from Chicken al Pastor to Carne Asada and a rise in cheese and avocado prices). Simultaneously, labor costs are projected to be around 25%, reflecting the persistent inflation in labor expenses.
Zacks Rank & Key Picks
Chipotle currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are:
Arcos Dorados Holdings Inc. (ARCO - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 28.3% on average. Shares of ARCO have surged 46.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Wingstop Inc. (WING - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has gained 77.2% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.8% and 18.2%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 14.4% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5.1% and 26.2% growth, respectively, from the year-ago period’s levels.