Chipotle's third-quarter revenue was up 13.7% year-over-year (y-o-y) to $2.2 billion and diluted earnings per share grew by 28.1% y-o-y to $9.20. Same-store sales jumped 7.6%, despite an uncertain economic environment. Additionally, Chipotle was able to open 43 new restaurant locations in the quarter. Also, in-restaurant sales increased 22.1% y-o-y, while digital revenue represented 37.2% of overall sales in the quarter.
Chipotle's management highlighted having to pay more for inputs like dairy, packaging, tortillas, and avocados in Q3 2022, which had a negative impact on profitability. But dealing with higher input costs is a problem that's not specific to Chipotle. The business combated this situation by raising prices during the quarter, its third time doing so in the past 15 months. And in October, prices went up again in 700 locations. Nonetheless, the average price of a chicken burrito bowl, which makes up 50% of orders in the U.S., remained below $9. The result was that Chipotle's operating margin jumped from 12.3% in the year-ago period to 15.1% in the latest Q3, leading to an operating income growth of 40% year over year.
Digital sales continue to be strong at almost 42% of the core food and beverage business in Q3, despite the return of in-person dining. Chipotle's highest-margin sales are digital orders, so momentum on this front serves the business well for continued profit growth in the long run. Chipotle's reward program (launched in Q1 2019) is gaining steam with an outstanding 30 million members (as of Q3 2022), wherein each purchase wins points that can be redeemed for food.
Chipotle still has plenty of room to grow by expanding its store count, and it shouldn't have to entirely rely on raising prices to drive revenue growth. In the fourth quarter, management expects comps to rise by mid- to high-single digits. 235 to 250 new store openings are expected for the full year, with 255 to 285 coming in 2023. The company reiterated its long-term goal of having 7,000 locations running in North America, more than double the 3,090 stores Chipotle operates today. Furthermore, annual unit sales are expected to eclipse $3 million in the future. More stores and more volume per store will certainly boost the company's prospects.
Below are key drivers of Chipotle's value that present opportunities for upside or downside to the current Trefis price estimate for Chipotle:
Number of Restaurants : The company is still able to add new restaurants, and increase its in-restaurant sales - illustrating that the additions are not cannibalizing existing locations. The company saw the addition of net 386 stores between the end of 2019 and 2021. We continue to expect an average of 7% growth in stores each year over our forecast period.
Average Revenue Per Restaurant : We expect the company's revenues to grow at a steady pace over our forecast period, with average restaurant sales growing at around 5% over our forecast period.
For additional details, select a driver above or select a division from the interactive Trefis split for Chipotle at the top of the page.
Chipotle Mexican Grill is a chain of restaurants operating in the casual dining segment, which specializes in serving Mexican cuisine. As of Dec 31, 2021, the company operated 2,918 restaurants, almost all of which are located within the U.S. All the restaurants are company-operated with no franchises.
Chipotle's menu comprises Mexican fare with a few things that can be mixed and matched with various sauces and ingredients such as salsa, guacamole, cheese, and lettuce, to make one's dishes. The menu primarily consists of Tacos, Burritos, Salads, and Burrito Bowls (Burritos without the Tortilla).
Chipotle operates on the "Food with Integrity" principle, offering naturally raised pork, chicken, and beef. Naturally raised implies that the animals are raised in open pastures and are fed on a purely vegetarian diet without any added hormones or antibiotics.
Chipotle's objective is to provide a fine-dining experience in a quick-service setup and to provide quality food and ambiance without having the customer wait too long. Some Chipotle restaurants can serve up to 300 customers an hour.
Chipotle competes with restaurants in the casual dining segment such as Applebee's, Qdoba, Taco Bell, and Chili's, among others. It also competes with fast-food restaurants such as McDonald's, Burger King, Subway, and KFC.
Chipotle's business is wholly dependent on company-operated restaurants, which explains the significance of this division to its stock.
Chipotle enjoys a higher average spend per customer than most of its competitors, given its high quality of food. For example, in McDonald's, the average spend per customer is around $4, whereas the corresponding figure in Chipotle is about $11-12. The company has successfully marketed itself as a restaurant serving natural, hygienic, and organic food in an upscale ambiance, for which the consumers are often ready to pay a slight premium.
Another reason why the company enjoys a higher average spend per customer is that it has restaurants only in developed countries, where the average spend is usually higher than in developing countries. Most of the fast-food restaurant chains have a mix of restaurants in developed and developing countries, which has a lowering effect on the overall spending per customer.
Consumers have become more health-conscious, and there is an increase in demand for natural and healthier food. Using its 'Food with Integrity campaign, Chipotle has aggressively marketed itself as a restaurant using only naturally raised meat. Taking cues from Chipotle, an increasing number of restaurant chains are adding all-natural products to their menu. Wendy's started offering upscale items on its menu last year. Moreover, its restaurant remodeling initiative is inspired by Chipotle.