Chipotle Mexican Grill, Inc. CMG has intensified focus on digitalization, food safety and enhancement of customer experience. This apart, various sales-building and strategic initiatives bode well. Shares of the company have rallied 24.5% year to date against the industry’s decline of 4.2%. However, the coronavirus pandemic continues to hurt the company’s performance.
Let’s delve deeper.
Chipotle is prioritizing its e-commerce program to gain customer confidence. The company is aggressively trying to make digital order placements more appealing to customers, thus adding more efficiency to its restaurant business in a bid to drive digital sales and retain customers despite the prevalent the coronavirus crisis. To this end, Chipotle redesigned and simplified its online ordering site, enabled online payment for catering, customized online meals and collaborated with several well-known third-party providers for delivery. During the first quarter of 2020, it also announced a successful national delivery partnership with Uber Eats.
Another initiative that has been benefiting the company is its rewards program. It has more than 11.5 million enrolled members. Over the past month, daily sign-ups spiked nearly four-fold, reflecting another positive sign that the company’s digital platform is gaining traction from. Clearly, 65% of newly-enrolled rewards members is new to the Chipotle brand, up from 51% in pre-COVID-19 times. In the first quarter, digital sales soared 81% year over year to $372 million and accounted for 26.3% of total sales.
Over the past few years, the company has strengthened many of its food-safety initiatives. These include wellness checks before every shift, availability of trained nurses to evaluate employee’s health on the job and installation of advanced technology air purification systems to reduce the risk of viruses.
For the ongoing year, this Zacks Rank #3 (Hold) company’s priorities will revolve around the five key initiatives, namely, use of stage gate process, optimal usage of digital programs to expand access and convenience, frequent customer interactions through loyalty programs, menu innovations and maintenance of operational excellence. Notably, these factors will help customers engage more closely with the company. Moreover, the company is focusing on unit extension to drive growth. It expects to inaugurate 150-165 restaurants in 2020.
Chipotle’s earnings results in the coming quarters are likely to be impacted by the coronavirus outbreak. The restaurant industry has been enduring traffic weakness for a while now. We believe, the pandemic mess will further dent traffic and sales in the coming quarters.
Although the company’s comparable restaurant sales inched up 3.3% in the first quarter, the same was well below the 13.4% growth rate registered in the prior-year quarter. At February-end, comps were up 14.4%. However, the metric witnessed a sharp decline of 16% in March due to the coronavirus chaos. The company withdrew its comparable restaurant sales guidance due to this unprecedented uncertainty.
Stocks to Consider
Some better-ranked stocks in the same space are Domino's Pizza, Inc. DPZ, Wingstop Inc. WING and Yum China Holdings, Inc. YUMC, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Domino's Pizza, Wingstop and Yum China have an impressive long-term earnings growth rate of 12.5%, 11% and 9.5%, respectively.
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