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Apr 24, 2019

Chipotle's sales accelerate, but Wall Street's hungry for more

Chipotle

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Chipotle Mexican Grill Inc. (CMG.N) posted same-store sales acceleration for a fifth consecutive quarter -- but higher costs related to wages, delivery and advertising represent a challenge for the burrito chain.

  • The Mexican restaurant chain reported comparable sales growth of 9.9 per cent last quarter, beating the estimate for a 7.3 per cent increase from Consensus Metrix.

Key Insights

  • Investors have cheered Chief Executive Officer Brian Niccol’s efforts to revamp the burrito chain, but his honeymoon may be coming to an end -- especially since the stock has already doubled in value over the last 12 months.
  • In addition to cleaning up the basics with better advertising and operations, Niccol is rushing to improve digital, expand delivery and offer more trendy items like Keto-diet friendly bowls. Digital sales doubled in the quarter, accounting for almost 16 per cent of revenue.
  • Chipotle is facing higher labor costs as minimum-wage increases take hold across the U.S. The company is especially sensitive to pay hikes because it owns its restaurants and doesn’t franchise.
  • The company is spending more on marketing this year to boost its brand image and encourage more digital orders. In March, Chipotle took its new loyalty program national.

Market Reaction

  • The shares alternated between losses and gains in late trading in New York, and were little changed as of 4:30 p.m. They have gained 64 per cent this year through Wednesday’s close.