Chipotle stock is on the move

Chipotle’s earnings increased 32% in the second-quarter — but the company has struggled since the stock split.

Chipotle Mexican Grill The stock of the fast food chain (NYSE:CMG), despite its second quarter earnings exceeding analysts’ expectations, was down on Thursday.

Chipotle’s quarterly revenue grew 18%, to $3 billion, beating the estimate of $2.94 billion. Net income increased 14% over the past year to $815 million, while earnings per share increased 32% to 33c per share. This beat estimates of 32c per share.

Stock prices initially soared by 10% after earnings were announced on Wednesday, just after the market closed. Stock prices began to fall in pre-market trade on Thursday, and were down about 4% at the opening of the market.

New restaurants fuel earnings, same-store sales rise

The solid earnings beat was the driving force behind the initial upward price movement after-hours. The restaurant chain’s surge in top line was fueled by the opening 52 new restaurants, including 46 with drive-through Chipotlanes, in the second quarter.

The revenue also soared thanks to an 11% increase in sales in the same store, boosted by an 8.7% increase in transactions, which is a measure of the number customers in its restaurants. Chipotle’s average check also increased by 2.4%, which indicates that people are paying more.

The same-store sales growth in Q2 was higher than in Q1, where they rose by 7%, or Q4 2023 when they grew by 8.4%.

Food, beverage, and packaging costs, or the cost of making the meals, were 29.4% of the total revenue. This is the same as in the second quarter of the year 2023. General and administrative costs rose 11% to $175 million.

The overall operating margin increased from 17.2% to 19.2% in the same quarter of last year, while the operating profit at the restaurant level rose to 28.9% from 27.5% during Q2 2023.

Brian Niccol, Chairman and CEO of Chipotle said, “The second quarter has been outstanding, as successful brand-marketing, including the return to Chicken Al Pastor, has driven strong demand to our restaurant.” “Our focus on throughput and training paid off, as we were able meet the stronger demand trend with terrific service and pace driving over 8% growth in the quarter.”

What caused the stock to move at Chipotle?

The sharp drop in Chipotle’s stock may be partly due to its outlook for fiscal 2024, which has remained the same. Chipotle expects comparable same-store growth to be in the high single-digits for the fiscal year. The number of new restaurants projected is the same as previous guidance.

The outlook would be a little slower than Q2 same-store growth, but then again, this quarter, the numbers were higher-than-expected. Concerns could also arise from projections of a general slowdown in fast-food sales. Chipotle is an outlier that has generated strong traffic, while others have struggled.

It was probably more about Chipotle’s value. The market is in a correction of stocks with high valuations. Chipotle would be included, especially after its 10% spike post-earnings.

Chipotle stock is a juggernaut. It has risen 65% by 2023, and another 11% this year. Its stock price rose to over $3,000 before a massive stock split of 50-to-one took place in late June. Now, it is trading at $50 per share.

Chipotle stock has corrected since the stock split on June 26, down 24% from $65 a share. The P/E ratio is now 50 instead of 65 as it was in April. This is still a high ratio, so it could fall further.

Should you buy Chipotle stock?

Chipotle doesn’t seem to have any fundamental problems, and it is actually growing rapidly. Chipotle’s debt has increased a little during this growth period, so it is worth watching, but the company has performed well overall.

The price correction will probably be a good thing to new investors of Chipotle stock. Chipotle’s median target is $65, which would allow it to regain what it has lost in the past three weeks.

Watch the valuation as it may drop a little more. Overall, Chipotle looks like a stock to keep on your radar because of its rapid growth.

This site is intended for entertainment only and does NOT offer financial advice.

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