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Chipotle beats Q3 earnings expectations

Heidi Chung
Reporter
Chipotle carne asada burrito bowl (Courtesy of Chipotle)

Chipotle (CMG) reported a beat on the top and bottom lines in its earnings report Tuesday and crushed same-store sales estimates amid a competitive fast-food environment. Shares initially jumped 2% in after-hours trade on the results but pared those gains and were about 1% lower during the conference call.

Here were the numbers for Chipotle’s third quarter, compared to Bloomberg-compiled estimates:

  • Revenue: $1.4 billion vs. $1.38 billion expected

  • Adj. earnings per share: $3.82 vs. $3.21 expected

  • Same-store sales: +11% vs. +9.3% expected

Same-store sales at Chipotle was boosted by a nearly 7.5% jump in comparable restaurant transactions. The company saw about a 3.5% increase in the average check, which partially benefited from menu price increases implemented in 2018.

“We're pleased with our overall results in the quarter, which reflects further progress on our key strategic initiatives to provide a great guest experience and position Chipotle to deliver above industry growth for many years to come,” CEO Brian Niccol said in statement. “These strong results reinforce that running great restaurants with a purpose of cultivating a better world is a compelling proposition.”

The company expects 2019 same-store sales growth at the top end of its high single-digit guidance. Chipotle also anticipates meeting or expanding slightly below its prior guidance of 140 to 155 new restaurant openings in 2020. 150 to 165 new restaurant openings are planned in 2019.

Chipotle’s bet into digital continued to pay off during the third quarter. Digital sales at the burrito chain grew 87.9% and accounted for 18.3% of sales in Q3. Last quarter, digital orders represented 18.2% of sales. Digital orders are important because they usually have higher check averages and reduce friction in the ordering process for customers.

Drive-thrus, also known as Chipotlanes, proved to be a success for the company. Chipotle said that based on early success of the Chipotlanes, it will shift its real estate strategy and open up stores that can accommodate the drive-thru lanes. There will be 60 total stores with Chipotlanes by the end of this year.

Restaurant level operating margin was 20.8% in the third quarter, up from 18.7% the same period last year. While the strong same-store sales increase helped with the operating margin improvement, it was partially offset by wage inflation, higher prices on certain ingredients and increased delivery expenses, according to the company. Management clarified that while avocado prices stabilized during the third quarter, Chipotle expects higher steak costs.

As competition continues to heat up in the fast-food industry, companies have been focusing on ways to lure customers into stores and drive sales growth. Menu innovation has been one of the key ways companies have been looking to distinguish themselves from the competition. In September, Chipotle added carne asada to its menus nationwide for a limited time. Chipotle said on the conference call that it expects to run out of carne asada in late November or December.

Chipotle has been on fire this year. The stock soared 92%, as of Tuesday’s close, and is the best-performing stock in the S&P 500 so far in 2019.

This post is developing. Please check back for updates.

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.

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