Chipotle Mexican Grill once again defied the restaurant industry slowdown by posting better-than-expected quarterly sales and profits. The fast-casual chain benefited from menu price increases and sustained demand for its burritos and tacos.
Q4 Financial Results Top Estimates
Chipotle’s fourth-quarter revenue rose 11% to $2.18 billion, surpassing Wall Street’s expectations of $2.23 billion, according to a Refinitiv IBES estimate. Same-store sales, a key metric in the restaurant industry, increased 7.6% compared to an estimated 5.8% rise.
The company’s net income rose to $257 million, or $9.20 per share, in the fourth quarter ended Dec. 31, from $190 million, or $6.69 per share, a year earlier. Excluding one-time items, Chipotle earned $8.29 per share, beating analysts’ average estimate of $8.24 per share.
“We capped off 2022 with another quarter of accelerating comparable restaurant sales that demonstrated the continued loyalty of our guests and the ability of our teams to provide exceptional dining experiences,” said Chipotle CEO Brian Niccol in the company’s earnings statement.
| Key Figures | Q4 2022 | Q4 2023 | Percent Change |
|---|---|---|---|
| Revenue | $2.0 billion | $2.18 billion | +11% |
| Comp Sales Growth | +15.2% | +7.6% | – |
| Earnings Per Share | $6.69 | $9.20 | +38% |
Chipotle’s robust fourth quarter capped a standout year for the fast-casual pioneer. For the full year 2023, revenue increased 15.4% year-over-year to approximately $9 billion as digital sales more than doubled to reach $3.8 billion and accounted for 42% of total sales. Comparable restaurant sales grew 7.6% compared to 2021. The company opened 80 new restaurants in 2022 to end the year with 3,789 total locations.
Menu Price Increases Boost Margins
A key driver behind Chipotle’s earnings beat was the company’s success in passing higher food and labor costs onto consumers through a series of menu price increases over the past year totaling approximately 13%.
The price hikes boosted profit margins in the fourth quarter as restaurant-level operating margins reached 25.5%, a 150 basis point improvement compared to the fourth quarter of 2022. Operating margins for the full year increased 80 basis points to 24.6%.
Chipotle plans to take more selective price increases this year rather than the across-the-board hikes of 2022. Executives noted they will continue monitoring inflationary trends and consumer demand elasticity when weighing further increases.
Digital Sales Growth Accelerates
Another bright spot in the quarter was the acceleration of Chipotle’s already fast-growing digital business. Digital sales grew 26% year-over-year to reach $1.19 billion and represented $54.5 million of the total comp sales dollar growth. For perspective, digital sales amounted to just $1 billion for all of 2021 compared to nearly $3.8 billion in 2022.
Chipotle attributes the ongoing digital momentum to operational improvements like opening more Chipotlanes for drive-thru pick up as well as artificial intelligence developments that enhance the digital ordering experience. Digital pickup lanes now represent more than half of new restaurant openings.
The company is particularly upbeat about the early success of its AI-powered digital order system called Smarter Pickup Times, which uses machine learning technology to better predict order volume and determine more precise pickup times. By more accurately aligning kitchen production and consumer arrival times, the technology is helping reduce wait times while also decreasing wasted food.
As Niccol explained on the earnings call:
“We’re pleased with the progress we’ve made leveraging artificial intelligence to enhance the overall digital guest experience. Our AI-powered Smarter Pickup Times resulted in meaningful improvements across our key throughput metrics including lower wait times, less food waste and record digital throughput for the quarter.”
Outlook Remains Positive Despite Broader Industry Challenges
Unlike many restaurant chains, Chipotle concluded 2022 from a position of strength and its outlook remains upbeat even as the industry confronts lower consumer spending. Executives cited the brand’s “cult-like following” and operational agility for its ability to thrive amidst economic uncertainty.
Whereas major chains like McDonald’s and Starbucks have seen sales growth fade in recent quarters, Chipotle posted accelerating comparable sales growth in 2022. Customer loyalty and less reliance on heavy discounting to drive traffic are allowing the fast-casual pioneer to better navigate inflationary pressures affecting the broader restaurant industry.
Still, management acknowledged slowing consumer spending was likely a drag on fourth quarter growth. Without the dampening economic backdrop, comparable sales growth could have been even higher according to CFO Jack Hartung.
Nonetheless, Chipotle believes it can continue opening new locations at a fast clip despite recession concerns. The company sees potential for more than 6,000 restaurants across North American based on its internal modeling. That represents nearly double its current domestic footprint.
International expansion also remains in the early stages. Chipotle recently opened its first restaurant in France and now operates just over 400 locations outside the U.S. Overseas unit growth is expected to accelerate with 120-150 new restaurant openings targeted in 2023.
Wall Street Cheers Results
Chipotle’s better-than-feared fourth quarter report was greeted enthusiastically by investors, with shares spiking as much as 15% to new all-time highs above $1,900 in early trading.
The stock reaction reflects relief after Chipotle entered earnings season facing heightened scrutiny around decelerating growth trends. Comparable sales had declined sequentially for three straight quarters as tougher year-over-year comparisons and economic weakness posed headwinds.
Tuesday’s blowout report helps validate Chipotle’s long-term growth thesis with analysts. As sales and traffic trends re-accelerated late in 2022 despite broader consumer spending cuts, the results showcase the brand’s pricing power and resilience.
Even after the huge post-earnings rally, most analysts see further upside for the stock as Chipotle’s category-leading digital business and international expansion offer additional growth drivers looking ahead.
Morgan Stanley analyst John Glass raised his price target to $2,200 from $1,920 and reiterated his Overweight rating. Glass called it an “impressive quarter in a turbulent consumer environment” and said he continues to view Chipotle as well positioned longer-term givendigitization tailwinds and market share opportunities from accelerated unit expansion.
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