Will Chipotle’s Digital Investments Pay Off In The First Quarter?
Chipotle Mexican Grill (NYSE: CMG) will announce its first quarter earnings on April 25, wherein a rise in revenue and decline in earnings per share is expected. Revenue growth is expected to be driven by an improvement in comparable sales, increased digital sales, and new store openings. However, the revenue growth will not be able to make up for the increased labor, and general and administrative expenses, resulting in an estimated 1.3% fall in EPS to $1.58, from $1.60 in the prior year quarter.
We have a $310 price estimate for Chipotle Mexican Grill, which is lower than the current market price. The charts have been made using our new, interactive platform. The various driver assumptions can be modified by clicking here, to gauge their impact on the earnings and price per share metric.
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Key Factors That May Impact The Performance
- Positive Industry Environment: The overall restaurant industry environment has been positive for the quarter ended March 2018. While comparable traffic declined, comparable sales have been positive on the back of higher average checks. In March, same-store sales growth was 0.8 percent, the second-best month for restaurant industry sales growth over the last two years. While fine dining and upscale casual restaurants have consistently shown sales growth, casual dining and fast casual struggled heavily in 2017. This trend seems to be reversing, as this segment has shown signs of recovery this year, recording positive sales in the first quarter of 2018. This should benefit Chipotle Mexican Grill.
- CEO Change: CMG recently announced that it had appointed Brian Niccol as its new Chief Executive Officer (CEO) effective from March 5, 2018. Niccol comes from Yum! Brands where he was the CEO of Taco Bell. He was instrumental in implementing a successful turnaround of that business. Chipotle, which is struggling to win customer confidence, is banking heavily on its new CEO to turn its business around. Niccol comes with strong expertise in digital technologies, restaurant operations, and brand building and these skills are crucial for Chipotle’s turnaround.
- Accelerating Digital Sales: This is the fastest growing part of CMG’s business, with the digital sales mix totaling 8.6% of the sales in the fourth quarter. Moreover, the company’s second make-line (team of workers that prepares virtual orders from a prep table in the kitchen) sales were up 33% over the prior year. This digital sales growth has been led by mobile ordering, which was up 50% over the previous year. In 2018, CMG intends to accelerate the rollout of its digitally-enabled second make-lines. These new lines enable a faster, and a more accurate experience for the digital customers, and allows CMG’s staff to more easily support the higher sales volumes. Cumulatively, including new restaurants, the company expects to have at least 30% of its restaurants outfitted with these new second make-lines by the end of 2018.
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