This Fast Food Stock Posted Healthy Profits in the Fourth Quarter
One of the most popular stocks on Wednesday was Chipotle Mexican Grill (NYSE:CMG) beat fourth-quarter profit estimates by a wide margin as diners flocked to the restaurant chain in droves.
The performance was even more impressive considering that rivals McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) both missed their sales estimates for the same quarter.
Chipotle stock was up about 9% as of late Wednesday afternoon.
Chipotle opened a record number of new restaurants last year.
For Chipotle, sales for the quarter were up 15.4% year-over-year to $2.5 billion, which was actually impressive as comparable restaurant sales were up 8.4%. The surge in sales was driven by a 7.4% increase in transactions and a 1% increase in average check value. The chain also opened 121 new restaurants in the quarter, further boosting overall sales.
Chipotle’s revenue growth was somewhat offset by operating expenses of $2.15 billion, up 14% year-over-year. The largest portion of that was food, beverage and packaging costs of $747 million, or 29.7% of total sales. This is an increase from $639 million, or 29.3% of total sales, in the same period last year. Chipotle’s food costs increased due to inflation and an increased mix of beef across its menus, slightly offset by lower paper costs.
All in all, the company generated net income of $282 million, or $10.21 per share, for the quarter, which is 11% higher than the fourth quarter of 2022. Restaurant-level operating margins improved to 25.4% from 24% in the fourth quarter. 2022.
For the year, sales increased 14.3% to $9.9 billion, with comparable restaurant sales up 7.9% over the previous year. Net income increased 38% to $1.23 billion, or $44.34 per diluted share, and restaurant-level operating margins increased 230 basis points to 26.4%. Chipotle also opened 271 restaurants in 2023, a record for the company.
Brian Niccol, Chairman and CEO of Chipotle, said: “2023 saw strong transaction growth driven by throughput and menu innovation, a record number of new restaurant openings, exceeding $3 million in average unit volume (AUV), and our first international partnership.”
An international partnership signed with international franchise retailer Alshaya Group in July will expand Chipotle’s presence in the Middle East. The first new restaurants opening through this partnership are scheduled to open in Dubai and Kuwait this year.
Will grow further in the future
Chipotle had 3,437 restaurants worldwide at the end of 2023 and aims to double that to 7,000 over the long term. Most are located in the United States, but there are also locations in the United Kingdom, France, and Germany.
By 2024, Chipotle expects to open 285 to 315 new restaurants, including some in the Middle East, as part of the new deal. When it comes to sales growth, fast-casual dining chains are expected to see similar single-digit sales growth as restaurants in 2024, compared to 7.9% growth in 2023.
Chipotle stock has been a behemoth for the past five years. It achieved a return of 65% in 2023, and as of February 7th over the past five years, the average annual return has been a ridiculous 38%. Moreover, the 10-year average annual return is solid at 17.8%.
Chipotle’s incredible growth and success makes it valuable because of its high price-to-earnings ratio (PPER) of 56 and forward P/E ratio of 46. I definitely like the stock, but that seems a little too high. We wouldn’t be surprised to see these numbers flattening out somewhat given the low same-store sales growth expected in the near term, high valuations, and an uncertain economic environment.
