2024-06-08 14:10:48 ET
Summary
- Chipotle reported a strong Q1, where revenue and earnings grew 14.1% and 20% YoY respectively, driven by strength in comparable sales and opening new restaurant and Chipotlane locations.
- During the quarter, the company drove higher transaction volume and size as it improved its throughput, while building innovative brand campaigns and menu innovations and expanding internationally.
- Although the management raised its guidance for its annual comparable sales growth targets, it has also mentioned risk areas such as volatile food prices and wage inflation, which can hurt margins.
- I believe that although Chipotle is positioned for long term success, its stock has excessive optimism baked into it despite growing short-term risks, making it a “sell”.
Introduction & Investment Thesis
Chipotle Mexican Grill (NYSE: CMG ) operates restaurants that serve burritos, burrito bowls, quesadillas, tacos, and salads using fresh, high-quality ingredients, and its stock has outperformed the S&P 500 and Nasdaq 100 YTD. The company reported its Q1 FY24 earnings on April 24th, where revenue and operating income grew 14.1% and 20% YoY, respectively, driven by the strength in transaction volume and size from improved throughput, relevant brand campaigns, and menu innovations, as comparable restaurant sales grew 7.0% YoY along with 47 new restaurant locations with 43 locations that include a Chipotlane, bringing the total restaurant count to 3479....
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Chipotle: Gains Are Likely To Stall As Valuation Risks Are High