Chipotle Targets 7,000 Restaurants in North America

By Brian Nelson, CFA

Chipotle (CMG) reported mixed third quarter results October 29 with revenue coming in a bit light relative to expectations and non-GAAP earnings per share outpacing the consensus forecast. Total revenue increased 13% in the quarter thanks to a 6% increase in comparable restaurant sales and new restaurant openings. Comparable restaurant sales missed the consensus estimate calling for 6.4% growth.

Still, Chipotle’s comparable restaurant sales growth consisted of higher transactions of 3.3% and a 2.7% increase in average check, a combination we view positively. The burrito-maker’s operating margin was 16.9% in the quarter (consensus was at 15.7%), up from 16%, while adjusted diluted earnings per share came in at $0.27, up from $0.23 in the prior-year period. During the third quarter, Chipotle opened 86 new company-owned restaurants with 73 locations including a Chipotlane drive thru.

Management had the following to say about the quarter:

Our focus on exceptional people, food and throughput and the long-awaited return of Smoked Brisket drove another quarter of strong results led by transaction growth. Our teams work hard to deliver extraordinary value to our guests as they provide our fresh, delicious and customizable culinary experience, at accessible prices to millions of people every day. They are the backbone of Chipotle and, together with our support centers, we will continue to execute against our five key strategies that help us win today, while we grow our future. This will help us to achieve our long-term target of reaching 7,000 restaurants in North America and move towards a more global brand.

Chipotle’s restaurant level operating margin came in at 25.5%, a decline from 26.3% in the prior-year quarter. Food, beverage and packaging costs increased to 30.6% of total revenue from 29.7% in the third quarter of 2023. “The increase was due to inflation across several ingredient costs, primarily avocados and dairy, higher usage of ingredients as (it) focused on ensuring consistent and generous portions, and a protein mix shift from the success of (its) Smoked Brisket limited time offer.” Digital sales accounted for 34% of total food and beverage sales. 

For 2024, management is targeting full-year comparable restaurant sales growth in the mid to high-single digit range, while it adds 285-315 new company-operated restaurant openings with 80% having a Chipotlane. For 2025, Chipotle is targeting opening 315-345 company-operated restaurants with over 80% having a Chipotlane. Though comparable restaurant sales were lower than the consensus forecast in the third quarter, we like Chipotle’s long-term plans calling for 7,000 restaurants in North America, up from the 3,600 restaurants it currently has in the U.S., Canada, the United Kingdom, France, Germany, and Kuwait. Chipotle remains a key idea in the Best Ideas Newsletter portfolio.

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