Chipotle Rallies, Long-term Outlook Remains Promising

Image Source: Valuentum 

By Brian Nelson, CFA

Burrito maker Chipotle (CMG) reported excellent fourth-quarter results February 6 that beat on both the top and bottom lines. Total revenue advanced 15.4% in the quarter, while comparable store restaurant sales increased 8.4% thanks primarily to higher transactions and to a lesser extent an increase in average check. The company’s restaurant operating margin expanded 140 basis points, to 25.4%.

Adjusted diluted earnings per share came in at $10.36 per share in the quarter, up 25% on a year-over-year basis. Chipotle opened 121 new restaurants in the fourth quarter, with 110 of them coming with a Chipotlane drive thru. Though the firm has considerable operating lease liabilities, free cash flow came in at $1.22 billion for the full year, up 44.5% from the $844 million mark in 2022.

Here is what CEO Brian Niccol had to say about the results:

2023 was an outstanding year where we delivered strong transaction growth driven by throughput and menu innovation, opened a record number of new restaurants, surpassed $3 million in AUVs and formed our first international partnership. I am more confident than ever that we have the right people and the right strategy to achieve our long-term growth goals of reaching 7,000 restaurants in North America, $4 million in AUVs, expanding our industry leading margins and returns and furthering our purpose of Cultivating a Better World globally.

We’re huge fans of Chipotle’s long-term growth runway, and we think the continued rollout of Chipotlanes offers the firm the ability to expand into the valuable breakfast daypart, which we think will come eventually. Its digital initiatives continue to work out well, too, with digital sales accounting for 36.1% of its total food and beverage revenue in the fourth quarter. Looking out to all of 2024, Chipotle expects full-year comparable restaurant sales growth in the mid-single-digit range and to add 285-315 new restaurants. The high end of our fair value estimate of Chipotle stands at $3,022 per share, and we continue to like shares in the Best Ideas Newsletter portfolio.