Key Takeaways From Chipotle Mexican Grill’s Q4 2017 Results
Chipotle Mexican Grill (NYSE: CMG) announced its Q4 2017 results on February 6th 2018 and the company reported a 182% year on year increase in EPS (earnings per share) which stood at $1.55. This increase was partially due to the benefit of changes in U.S. tax laws (accounting for $0.21 of the increase) and also coming off a very depressed base a year ago. Comparable sales growth remained disappointing at 0.9%. The highlight of the quarter was an improvement in restaurant level operating margin from 13.5% to 14.9%. This improvement was driven primarily by decreased promotional activity and lower food, beverage, and packaging cost as a percentage of revenue.
The charts below summarize the company’s performance in Q4 2017 and our expectations for 2018.
You can click here to access these charts and modify our assumptions for 2018.
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The company registered a 6.4% increase in comparable restaurant sales for the full year 2017. This increase was driven by an increase in average check and a menu price increase led to a 1.2% increase in comparable sales. Average check size also benefited 200 basis points from the company’s popular queso dip. According to the company, customers are adding queso in around 10% of its total transactions.
Digital sales accounted for 8.6% of the company’s total sales and mobile ordering increased by 50% in 2017 compared to the previous year.
Going Forward:
- Chipotle is focusing aggressively on changing its operational culture to improve customer satisfaction. It is launching a dedicated centralized training program in Denver to effectively train its employees to deliver a consistent guest experience.
- The company will remain focused on its digital initiatives and market this capability further as it sees tremendous growth in mobile ordering. In 2018, the company will roll out its digitally enabled second make lines (team of workers that is focused on digital orders which avoids impacting the main kitchen line) to deliver a faster experience for its digital customers.
- The company’s catering sales have grown 20% in 2017 and while the catering business accounts for slightly more than 1% of its total sales, Chipotle sees a strong growth opportunity in this segment. The company will test new catering offerings in 2018, including catering options at lower prices to drive growth.
- Chipotle will invest $300 million in capital expenses in 2018 and a significant amount of this capex will be allocated toward redesigning existing restaurants.
- In 2018, Chipotle expects a low single digit growth in comparable sales and is likely to open 130-150 restaurants.
We will be updating our model based on these results, which can lead to a change in our price estimate for the company.
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