Chipotle's stock rises as higher prices and demand drive better-than-expected results

By Bill Peters

Results follow dimmer sentiment from Starbucks, McDonald's

Shares of Chipotle Mexican Grill Inc. rose after hours on Tuesday after the Mexican fast-casual chain reported fourth-quarter results that topped Wall Street's estimates, as consumer demand and higher prices on the menu outweighed higher ingredient costs.

The company reported fourth-quarter net income of $282.1 million, or $10.21 a share, compared with $223.7 million, or $8.02 a share, during the same quarter in 2022. Chipotle reported adjusted earnings of $10.36 a share.

Revenue rose 15.4%, to $2.52 billion. Same-store sales increased 8.4%.

Analysts polled by FactSet expected Chipotle (CMG) to report adjusted earnings per share of $9.71, on revenue of $2.49 billion, with a 7.1% same-store-sales gain.

The sales results for the quarter were helped by a 7.4% increase in consumer transactions at restaurants. Digital sales accounted for more than a third of total food and drink sales. Costs for beef, produce and queso rose. Costs for paper fell.

Executives said they expected full-year same-store sales growth in the "mid-single-digit range." FactSet forecast a 5.3% increase.

Shares rose 2.9% after hours.

"We opened 121 new restaurants during the fourth quarter with 110 locations, including a Chipotlane," executives said in Chipotle's earnings release. "These formats continue to perform well and are helping enhance guest access and convenience, as well as increase new-restaurant sales, margins, and returns."

Chipotle's results follow a dimmer outlook from McDonald's Corp. (MCD), which said Monday it expected "macro challenges" to continue this year as it contends with a low-income consumer hit harder by inflation and the impact abroad from a widening conflict in the Middle East. Starbucks Corp. (SBUX) also said the conflict - including related calls for boycotts in the U.S. - and a more wary consumer in China had weighed on its most recent quarterly results.

A report last month from Placer.ai said that Chipotle last year attracted more customers from wealthier areas less likely to feel the impacts from higher prices. And the chain last month announced plans to hire 19,000 people to handle what it calls "burrito season," which runs from March to May and is Chipotle's busiest time of the year.

Ahead of the financials from Chipotle, some analysts were focused on the potential impact of harsher weather in January. Others focused on higher beef costs, higher worker wages and the potential for a corresponding increase in menu prices, and the prospect of new menu-item promotions, following last year's limited-time return of carne asada, which remains popular.

BTIG analyst Peter Saleh, in a research note last month, said that in the longer term, the development of Chipotle's drive-through Chipotlanes - geared toward handling digital orders and driving higher margins - was "underappreciated" by investors. And he said international growth could be a bigger story for the chain in the second half of this decade.

"Continental Europe has been a difficult market for restaurants other than the large quick-service brands, but we see a lot of opportunity in Canada, the U.K. and a few other markets given cultural influence and restaurant landscapes," he said.

-Bill Peters

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02-06-24 2021ET

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